On 18 July, the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act was signed into law by President Donald Trump. Its passing represents the culmination of a revolution in the USA’s regulatory approach to digital assets, from sceptical to enthusiastic. The new administration believes that, since 98 per cent of all stablecoins are pegged to the dollar, they have the potential to cement the financial supremacy of the dollar and boost the growth of the American economy. So, what lessons can the Financial Conduct Authority (FCA) take from GENIUS as they draft the UK approach to stablecoins in the UK?  

Overall, there is a large degree of overlap between the GENIUS Act and the FCA’s draft proposals in CP25/14 and CP25/15; both jurisdictions will require stablecoin issuers to: 

However, there are some key differences which are likely to determine how stablecoins are used on either side of the Atlantic.  

Legal definition of stablecoins 
The GENIUS Act has changed the US definition of stablecoins from being a ‘digital commodity’ to being a payment solution. This matters because it largely exempts US stablecoin issuers from US Securities and Exchange Commission (SEC) oversight and instead places them under the supervision of the Office of the Comptroller of the Currency (OCC), which will likely mean a lower level of disclosures and monitoring of transactions. Within the UK, under the ‘qualifying stablecoin’ definition set out in HM Treasury’s draft Cryptoassets Order, it’s not entirely clear whether stablecoins are to be treated as investment-type instruments, or payment-like instruments. Within the FCA’s requirements, stablecoins will mostly be regulated as money-like instruments, obligating stablecoin issuers to comply with a range of payments requirements such as redemption and interest-bearing restrictions. At the same time, stablecoins will also need to comply with a range of securities-type requirements, such as within the FCA’s Conduct of Business Sourcebook (COBS) and the Market Abuse Regime for Cryptoassets (MARC). This is likely to create a higher burden of oversight for stablecoin issuers based in the UK. 

Consumer Duty 
Under the GENIUS Act, consumer protections in the USA include regular disclosures of coins in circulation, prohibitions on misleading financial promotions, and compliance with the Bank Secrecy Act. In the UK, stablecoin issuers will have to comply with the Consumer Duty, which places greater demands on issuers to ‘deliver good outcomes for retail customers.’ In contrast to US regulation, there will be an emphasis on ensuring that ‘vulnerable customers’ are not adversely impacted by the issuance of stablecoins. Stablecoin issuers based in the UK, or selling into the UK market, will likely need a bespoke marketing and customer service offering above and beyond what is required in the USA.  

However, it should be noted that while US regulation is likely to be less restrictive, firms operating in America will likely be subjected to a wider array of regulatory bodies, including the OCC, the Consumer Financial Protection Bureau (CFPB), the Federal Reserve and various other state and local-level bodies. By comparison, the FCA is likely to be the sole regulatory body dealing with non-systemic stablecoins while the Bank of England regulates ‘systemic’ stablecoins.  

Custody of assets 
The FCA is proposing that backing assets for UK firms be required to be held with an independent third-party custodian, whereas the US is only requiring the segregation of assets within the balance sheets of issuers. While the UK approach may offer more security for consumers, it could create complexity in the corporate structures of issuers versus US-based firms. 

Non-financial issuers 
Intriguingly, US regulations allow non-financial firms to issue stablecoins if approved by the Stablecoin Certification Committee. This opens the door to large retailers such as Walmart, Amazon and others creating their own stablecoin. So far, there is no indication the FCA would allow non-financial firms to create stablecoins, even though some retailers, such as Tesco, already offer banking services. 

Conclusion 

While there is much in common between the US and UK approaches, the US appears to allow a greater degree of freedom and innovation than the current UK approach, with the likely trade-off of accepting greater volatility and potential financial instability.