The UK Treasury Department set out on Tuesday plans to amend existing rules to deal with any major stablecoin collapses, such as with TerraUSD this month.
It is the latest sign of how regulators are trying to catch up with the rapid developments in crypto markets that stretch across national borders.
“Since the initial commitment to regulate certain types of stablecoins, events in crypto asset markets have further emphasized the need for appropriate regulation to mitigate risks to consumers, market integrity and financial stability,” the ministry said.
Banks, insurers and mainstream payment companies must comply with rules that ensure that their deposit accounts, policies or services can be quickly transferred to another provider if they fail, in order to avoid panic and contagion in the markets.
Stablecoins, which play a vital role in crypto markets, are digital tokens that are pegged to the value of traditional assets, such as the US dollar, and are seen as playing a greater role in payments.
The collapse of TerraUSD, a popular stablecoin that was the 10th largest cryptocurrency, has sparked central bank concerns in an unregulated sector.
“The failure of a systemic digital settlement asset manager could have a wide range of financial stability and consumer protection implications,” the ministry said in a consultation paper.
“This could be in terms of continuity of services critical to the functioning of the economy as well as individuals’ access to their funds or assets.”
While work is underway on whether tailor-made rules were needed to phase out failed stablecoins, existing rules for dealing with payment company failures need to be amended, the ministry said.
It proposed changing the Financial Market Infrastructure Special Administration Regime, which would give the Bank of England powers to ensure the continuity of stablecoin payment services during a crisis.
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