On May 31, the UK Finance Ministry revealed plans to change the existing legislation to prevent significant stablecoins from collapsing. The UK’s HM Treasury also emphasised in a consultation document released on Tuesday that there is a need to manage risks related to the failure of a systemic digital settlement asset business, which might affect a wide variety of financial stability and investors. The British government also recommends safety net measures and some changes to the Financial Market Infrastructure Special Administration Regime, which would allow the Bank of England the authority to ensure that stablecoin payment systems continue to operate during a crisis. The UK ministry stated:
“Since the initial commitment to regulate certain types of stablecoins, events in crypto-asset markets have further highlighted the need for appropriate regulation to help mitigate consumer, market integrity and financial stability risks.”
Due to the recent collapse of TerraUSD stablecoins, the finance ministry stated that traditional payment companies, banks, and insurance are all affected. The ministry revealed that the crypto firms “must comply with rules which ensure their deposit accounts, policies, or services can be transferred quickly to another provider if they go bust, to help avoid panic and contagion in markets.”
The HM Treasury stated that more research is being done to see if custom laws are required for winding down failing stablecoins. The regulator also analyses the necessity to alter current legislative frameworks in order to properly manage the financial stability risks posed by the failure of systemic digital settlement asset providers.
The newest step is the UK Treasury Department’s attempt to regulate stablecoins in the aftermath of the massive catastrophe. The downfall of the TerraUSD stablecoin raised worries among regulators in the under-regulated industry. The drop has bolstered the argument that the architecture of some stablecoins carries significant dangers. Janet Yellen, the US Treasury Secretary, has urged stablecoin regulation after the de-pegging fiasco that engulfed TerraUSD.
Following the de-pegging of the TerraUSD, South Korea has said that it intends to improve stablecoin regulation. To hasten the approval of the “Digital Asset Basic Act,” South Korean financial regulators are undertaking an emergency examination of cryptos.
Read more:
- UK cryptocurrency investors can compensate for losses with future profits: HMRC
- UK’s financial regulator alert towards stablecoins after Terra’s collapse
