On 2 July 2019, the FCA published a speech by Christopher Woolard (Executive Director of Strategy and Competition, FCA). The speech, Regulating financial innovation – going behind the scenes, covers ‘stablecoins’ and ‘non-stablecoins’.

Mr Woolard explains that market participants use ‘stablecoin’ as a broad term, which encompasses a variety of different types of cryptoassets. A stablecoin could fall within or between certain regulatory categories. For example, a stablecoin could refer to a cryptoasset backed by fiat currency. In certain cases, a fiat-collateralised cryptoasset could constitute e-money if it meets the definition provided in the Electronic Money Regulations. The term stablecoin could also apply to algorithmically controlled tokens or those backed by ‘real world’ assets such as securities. Such stablecoins could amount to regulated products like collective investment schemes depending on their characteristics. Therefore something labelled as a stablecoin could sit within or outside the regulatory perimeter depending on its structure.

Mr Wollard explains that the FCA expects any wold-be cryptoasset issuer to be asking themselves certain questions before launching a product. Such questions include:

  • Is my product a beneficial innovation for consumers and markets? Or does it include hidden bugs and unmitigated risks?
  • Am I prepared to be open and cooperative with domestic and international regulatory agencies? How do I approach issues like anti-money laundering?
  • Will the target market I have in mind for this cryptoasset be able to make an informed and balanced judgement of the risks and benefits of investing in or using such an asset?
  • Finally, and most importantly, have I completed the regulatory, legal and technical due diligence in advance of launching a new product or service?

In the final part of his speech Mr Woolard discusses how innovators should navigate the landscape. In particular, the FCA invites firms to consider applying to its innovation firm support services, such as direct support, which provides regulatory feedback for eligible innovative propositions or the regulatory sandbox, which provides firms with the opportunity to set-up compliant and controlled tests. Mr Woolard adds that early engagement with the FCA is incredibly valuable for monitoring, supervisory and policy purposes.