The Financial Conduct Authority (FCA) has published a consultation on proposed rules and guidance on the issuance of stablecoins, as part of its wider work into creating a financial regulatory regime for cryptoassets. This includes work on cryptoassets custodians and a prudential regime for cryptoassets firms, which we discuss here and here.

What is a stablecoin?

Draft legislation published by the Treasury last month defines ‘qualifying stablecoins’ as a form of cryptocurrency that seeks or purports to maintain a stable value with reference to a fiat currency (usually the US dollar) through the issuer of the stablecoin holding, or arranging for the holding of, fiat currency or a combination of fiat currency and other assets.

As the consultation paper explains, because stablecoins are designed to be “stable, money-like instruments”, the FCA proposes to treat the issuance of them differently from activities associated with other cryptoassets. By doing this, the FCA aims to ensure their stability, protect those who hold them, and increase market confidence.

What is being proposed?

The consultation is a thorough document, and sets out detailed requirements with which the FCA proposes issuers will have to comply when issuing a qualifying stablecoin, covering everything from record-keeping, disclosure requirements, and rules relating to third parties, to extensive rules on backing assets and redemption. Some of the headline proposals are as follows:

• Issuers must understand and manage the risks associated with the design and build of a qualifying stablecoin before it is issued, for example by using technology to improve its functionality and to make it less attractive to be used for illicit purposes.
• Stablecoins must be fully backed at all times by backing assets which are “low risk, secure, and sufficiently liquid” and in amounts equivalent to the value of the stablecoins that have been minted. The consultation sets out the type of ‘core backing assets’ that are permissible, and makes clear that issuers wishing to extend their asset pool must have sufficient controls in place and notify the FCA. Issuers will also not be able to use backing assets that are not in the same denomination as the reference currency (or currencies) as the qualifying stablecoin, and a minimum of five percent of the backing assets must be held in on-demand bank deposits.
• Backing assets must be held in a statutory trust for the benefit of holders of the qualifying stablecoin, and issuers must appoint a third party, unconnected to the issuers’ group, to safeguard the backing asset pool.
• Issuers must redeem qualifying stablecoins of any amount at par value with the reference currency by placing a payment order for redeemed funds within one business day of receiving a valid redemption request. Holders will have a right to redeem in the same currency as that to which the qualifying stablecoin is referenced.
• Issuers must publish and keep up to date information that will allow holders to make informed decisions in relation to the stablecoin. This includes, for example, the value and percentage breakdown of the assets comprising the backing asset pool, the total number of stablecoins minted and issued, and information about the redemption process.

The consultation closes on 31 July 2025, and can be read in full here.