New regulatory powers Digital settlement assets Bringing digital settlement assets into the regulatory perimeter
This Act gives HM Treasury a power to bring digital settlement assets used for payments into the UK regulatory perimeter. It introduces a definition of "digital settlement asset", a new concept which has not been previously defined in legislation. Given the nascent nature of the cryptoasset market, the Act gives HM Treasury a power to amend this definition in the event that there are changes in the features, underlying technology or usage of these assets, so that the regulation can continue to have effect as intended.
	As mentioned above, the government’s staged and proportionate approach will begin by focusing on stablecoins which reference their value from fiat currency (such as Pound Sterling), where used as a means of payment, because the government believes that such tokens share characteristics with existing forms of electronic money. This will ensure that fiat-linked stablecoins, where used for payments, are subject to the same requirements and protections as other similar payment methods.
	A feature of the current design of the UK payments and electronic money legislation is a degree of regulatory overlap between the authorities, where responsibilities are distributed across the regulators and they set requirements and oversee firms pursuant to their differing statutory objectives. By extending the existing frameworks to cover fiat-referenced stablecoins used as a means of payment, further regulatory overlaps will apply between the Bank of England and the FCA for a small number of systemic firms. The Act therefore puts in place a regime that allows for the clear identification of the applicable regulatory requirements (for example, in relation to prudential rules) where a payment system using digital settlement assets or digital settlement asset service provider is recognised as being systemic by HM Treasury.
	Specifically, the Act:
Provides the power for HM Treasury to establish an FCA authorisation and supervision regime, drawing broadly on existing electronic money and payments regulation, to mitigate conduct, prudential and market integrity risks for issuers of, and payment service providers using, stablecoins.
Enables HM Treasury to recognise the operators of systemic payment systems and systemic service providers using digital settlement assets for regulation by the Bank, subject to meeting relevant thresholds and following HM Treasury’s publication of a recognition order. This will enable the Bank to regulate and supervise systemically important stablecoin payment systems and related service providers to mitigate financial stability risk.
Enables the PSR to regulate payment systems using digital settlement assets, following HM Treasury’s publication of a designation order, to address issues relating to competition innovation, user interests and access.
Enables HM Treasury to apply the Financial Markets Infrastructure Special Administration Regime (FMI SAR), which is a bespoke administration regime for recognised payment and settlement systems and recognised service providers, to stablecoin firms that have been recognised by HM Treasury, with appropriate modifications. This will ensure appropriate tools are in place to mitigate the risks to financial stability associated with a systemic stablecoin firm’s failure.
Amends or disapplies existing FCA or PRA rules in areas relating to financial stability to avoid relevant systemic stablecoin firms being subject to conflicting requirements. HM Treasury intends to establish this mechanism through secondary legislation.