In a new consultation document published on Tuesday, the UK Treasury proposed a new series of regulatory changes for the stablecoin sector.
In his report, The Treasury highlighted the importance of stablecoins when it comes to innovation, but also noted their ability to affect financial stability in the event of systemic failures. Specifically, the Treasury requested:
- The appointment of the country’s Financial Market Infrastructure Special Administration Regime (FMI SAR) as the main entity to deal with the possible systemic failure of the digital settlement asset (DSA). DSAs include but are not limited to stablecoin issuers, wallet providers, and third-party payment providers.
- Expanding the IMF SAR’s jurisdiction to include and oversee the timely return or transfer of customer funds in the event of a DSA company’s default.
- More power to the Bank of England to direct administrators and create regulations that will help the IMF SAR.
- The requirement that the Bank of England consult the country’s Financial Conduct Authority before requesting an administration order or directing administrators in the event of a regulatory overlap.
Among other points, Treasury cites the possibility that “large numbers of people will lose access to the funds and assets they have chosen to hold as a DSA” as a critical factor for the proposed regulatory changes. By expanding the IMF SAR’s jurisdiction, it “would allow administrators to account for the return of customer funds and private keys, as well as continuity of service,” the report says.
The regulatory proposal came weeks after the collapse of the Terra Luna stablecoin ecosystem, which wiped out nearly $60 billion in investor capital. So-called anonymous attackers took advantage of structural design flaws in the (now) Terra Luna Classic token and TerraUSD stablecoin, leading to a death spiral that unpegged TerraUSD from its peg to the US dollar and sent its sister token virtually zero. steel. As part of the consultation process, individuals and interested parties have until August 2 to submit their comments on the proposed regulatory changes to the Treasury.
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