The UK Financial Conduct Authority announced that prospective UK stablecoin issuers looking to test ideas can apply to its Regulatory Sandbox for product, support, and to help shape future regulation.
“This is a unique chance for innovative companies to test their stablecoin products and services under the UK’s evolving regulatory regime,” the FCA wrote. It complements broader innovation initiatives such as the Digital Securities Sandbox.
Stablecoins are increasingly important in crypto asset markets and could drive new ideas in financial services, with potential uses for both retail and wholesale customers.
Recent consultations on stablecoin issuance and crypto asset custody and application of the FCA handbook for regulated crypto asset activities have set out proposed rules and guidance, giving issuers a clearer view of future regulations.
The stablecoin cohort of the regulatory sandbox is aimed at firms planning to issue a stablecoin in the UK under the upcoming regime and companies ready to test their stablecoin and help shape FCA policy. Participants will try out stablecoin solutions in a controlled environment – either with consumers live in the market, or using firm data.
David Geale, executive director for Payments and Digital Finance and Payment Systems Regulator (PSR) and managing director, said in a recent speech that the first successful entry, a “major firm” has been accepted and is gearing up for testing in the next couple of months. “We will support them as they test their GBP stablecoin for payments in another world first,” he said, speaking at a recent City & Financial Global conference.
The FCA also recently published a report alongside the Monetary Authority of Singapore (MAS) and trade associations on tokenization and bridging the adoption gap.
Among the potential use cases, tokenized assets can streamline collateral management through smart contracts.
“Tokenized assets can be pledged or rehypothecated, enabling real-time margining and reducing the friction traditionally associated with collateral transfer. Fund management firms emphasized the growing use of tokenized collateral in derivatives trading, while also pointing to the potential of tokenized funds to provide yield-bearing opportunities for Web3 investors.
“Stablecoin reserves could also be managed by trusted asset managers. Where the underlying assets of a fund or stablecoin reserve are themselves tokenized, transparency on these underlying holdings can be offered to underlying investors allowing verification. This may be advantageous where the fund or stablecoin is used as collateral or investors require look-through reporting,” according to the report.