In November last year, the Bank of England (BoE) and UK’s Financial Conduct Authority (FCA) released a consultation paper on regulating fiat-backed stablecoins. Now, the Association for Financial Markets in Europe (AFME) has published its response to the consultation, expressing concerns for certain proposals that could “hamper the scaling of security token markets in the UK”.
In particular, AFME expressed concern about proposed approaches to the territorial scope of regulated custody activities. Related to that is the treatment of security tokens as cryptoassets for regulated custody activities. The latter “represent significant deviations from current market practices”. As a result, it could hamper the scaling UK’s security token markets, and the country’s ability to participate in these markets globally.
Additionally, AFME proposed three recommendations. Existing Client Assets Sourcebook (CASS) rules for the protections of client assets “should be maintained for the custody of digitally native traditional assets”. FCA should consider adapting the proposals for backing asset criteria and redemption processes in order to facilitate the issuance and use of stablecoins. Finally, FCA should reconsider its proposed requirement for a UK payment arranger or delay its implementation until international frameworks mature. This is to facilitate the use of overseas issued stablecoins by wholesale financial institutions.
