On 31 May 2022, HM Treasury published an open consultation seeking views on a regime to address the failure of a systemic digital settlement asset (DSA) firm.

The government is taking a staged approach to cryptoasset regulation with the goal to create the conditions for issuers and service providers of stablecoins (used as a means of payment) to operate and grow safely in the UK, whilst mitigating the potential financial stability issues that may materialise should a firm, that has reached systematic scale, fail. In advance of any consideration on the need for a bespoke legal framework for systemic DSA firms, HM Treasury considers an amended FMI SAR to be the most appropriate vehicle through which to address the risks posed by the possible failure of systemic DSA firms which are not banks.

The consultation seeks views on both the intention to appoint the FMI SAR as the primary legal framework through which to address the failure of a systemic DAS firm, as well as the necessary amendments that will be required to ensure the FMI SAR can operate effectively with regard to such a firm. Separately, HM Treasury will be consulting, in the coming months, on the regulatory perimeter for systemic payments firms at large.

The consultation requests responses to the following questions:

  • Do you have any comments on the intention to appoint the FMI SAR as the primary regime for systemic DSA firms ( as defined at para 1.8) which aren’t banks ?
  • Do you have any comments on the intention to establish an additional objective for the FMI SAR focused on the return or transfer of customer funds, similar to that found in the Payment and E-money Special Administration Regime (PESAR), to apply solely to systemic DSA firms?
  • Do you have any comments on the intention to establish an additional objective for the FMI SAR focused on the return or transfer of customer funds, similar to that found in the PESAR, to apply solely to systemic DSA firms ?
  • Do you have any comments on the intention to provide the bank of England with the power to direct administrators, and to introduce further regulations in support of the FMI SAR to ensure the additional objective can be effectively managed, or what further regulation may be required ?
  • Do you have any comments on the intention to require the Bank of England to consult with the FCA prior to seeking an administration order or directing administrators where regulatory overlaps may occur ?

The deadline for responding to the consultation is 2 August 2022.

Following the closure of the consultation, HM Treasury will consider respondents’ views and publish a consultation response.