The UK Treasury Treasury is currently considering making changes to the payments legislation to enable retail payments for goods and services to be made using fiat-backed stablecoins. This includes an option the Treasury are exploring to allow certain stablecoins which are issued outside of the UK to be used for payments. The FCA’s Discussion Paper explores the proposed regulation around the issuance and custody of fiat-backed stablecoins under the Financial Services and Markets Act 2000 and the use of these stablecoins as a means of payments under the Payment Services Regulations. Sheldon Mills, executive director, consumers and competition, FCA, says: “Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely. Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives." The Bank’s Discussion Paper outlines how the Bank of England would regulate operators of systemic payment systems using stablecoins - payments systems which, if widely used for retail payments in the UK, could otherwise pose risks to financial stability. The Bank would also regulate other entities providing services to these payment systems, such as stablecoin issuers and wallet providers, where they could otherwise pose financial stability risks. Sarah Breeden, deputy governor for financial stability, Bank of England, comments: “Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place. Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.” The Prudential Regulatory Authority (PRA) has also published a Dear CEO letter, on how it expects deposit-takers to address the risks that arise from issuing multiple forms of digital money and countering contagion risks. The letter also sets out the PRA’s broader expectations for banks regarding their use of digital money for retail or wholesale innovations, in areas such as operational resilience, anti-money laundering, counter-terrorist financing, and liquidity and funding risks. The FCA and the Bank welcome feedback from the public and industry by 6 February 2024.