U.K’s Treasury Recommends Boosting Stablecoin Protections Post Terra Collapse
On Tuesday, May 31, the U.K. government proposed additional measure to safeguard users from potential stablecoin collapses following the Terra episode earlier this month. In its consultation period, the government recommended fresh amendments to the existing legislation to address the stablecoin risks.
Furthermore, it seeks to give additional power to Bank of England (BoE) to oversee the administration of failed stablecoin issuers. The U.K. Treasury will also publish an initial consultation in managing “systematic failure” in crypto assets.
In its proposal submitted to the U.K. Parliament, the U.K. Treasury notes: “Since the initial commitment to regulate certain types of stablecoins, events in cryptoasset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks”.
If further added: "This role (for BoE) will enable it to pursue its statutory role with regard to financial stability. It is important to ensure existing legal frameworks can be effectively applied to manage the risks posed by the possible failure of systemic DSA firms”.
The U.K Parliament has two months to consider the Treasury’s call. In the meanwhile, the Treasury shall also be having discussions with UK’s Financial Conduct Authority regarding Terra’s failure.
Under the Treasury’s proposal, the UK would amend its Financial Market Infrastructure Special Administration Regime, or FMI SAR, to check the possible risks posed by the failures of stablecoin firms that aren’t banks. The U.K. central bank will also consult the FCA before seeking special administration for stablecoin firms.
“Further work will be required to consider whether it would be appropriate to put in place a bespoke legal framework for the failure of such firms and, if so, its design,” the Treasury added.
Working on a similar lines in the U.S, CFTC commissioner Caroline Pham recently spoke in detail about crypto regulations and consumer protection. She spoke about a wide range of crypto-related issues such as stablecoins, shadow banking, consumer protection, and much more.
Pham said that one of the biggest concerns with the regulators is regarding stablecoins also called the algorithmic stablecoins. “The SEC regulates securities, but for everything that is not a security the CFTC probably has some regulatory touchpoint over it. We have the regulation over derivatives based on commodities, but we also have certain areas where we directly regulate spot markets,” said Pham.
She further added: “So, I really welcome the efforts of Congress to provide a clear and holistic regulatory framework over crypto, and to make it very clear and even to expand the CFTC's jurisdiction in this space, to make sure that there's that clarity for the industry so that way there can be more growth in compliant digital asset markets with adequate protections for the retail public”.