The UK’s Financial Conduct Authority (FCA) We’re consulting on proposed prudential rules and guidance for issuing qualifying stablecoins and safeguarding qualifying cryptoassets.
In the stablecoin proposal, the FCA considers price risk in stablecoin backing asset pools. A qualifying stablecoin issuer may have additional need for liquidity due to the way in which their business model operates. Under the FCA’s proposed rules qualifying stablecoin issuers must maintain 1:1 backing of the qualifying stablecoin minted.
They will also be subject to “top up” requirements where there is a shortfall in the backing assets pool. Where a shortfall occurs, this may cause a strain on the liquidity of the qualifying stablecoin, and the qualifying stablecoin issuer may not be able to meet their safeguarding requirements. To minimize the risk of a firm being unable to top up, it should hold sufficient liquid assets to make up any shortfall by the end of the next business day.
In the crypto custody proposal, the FCA has outlined requirements for issuers to structure their backing pool so that it contains only certain asset classes; this includes on demand deposits; and government treasury debt instruments that mature in one year or less. In certain circumstances; public debt of a longer residual maturity; assets, rights or money held as a counterparty to a repurchase agreements or reverse repurchase agreements; and some limited money market funds. The composition of the backing asset pool must be able to meet requirements for redemption at all times and ensure that the qualifying stablecoin maintains stability.