Stablecoin acceptance and the future of the UK stablecoin sector

How Stablecoins are already changing the banking and payments landscape and challenges for the UK market

Strategic M&A activity in the stablecoin payments market is picking up pace as reflected in a series of moves by industry leaders in the space. The latest example of this is the recent announcement of the acquisition of Iron, an API-first stablecoin infrastructure startup, by US crypto payments specialist MoonPay. 

In this article, we look at the growing use of stablecoins in payment acceptance and some of the issues facing the UK market, including details on the UK Government’s recently released draft statutory instrument on cryptoassets.

What are stablecoins?

Stablecoins generally are blockchain-based crypto asset tokens backed by traditional fiat currencies or other real world assets. These may be crypto tokens backed 100% by fiat cash equivalent assets and redeemable 1:1, for example, for US dollars or Euros. Other types of stablecoins may be crypto-backed, achieving stability through overcollateralisation, or controlled by some form of smart contract-based algorithm. 

They’re designed to offer stability in the often-volatile crypto market, with the idea that the value of the US dollar or Euro is less prone to the volatility faced by other types of crypto assets. Particularly in the case of fiat-backed stablecoins, they are often seen as a bridge between crypto and traditional finance and are increasingly used as a bridge to traditional payments rails and payment methods. 

How are stablecoins being used in payments acceptance?

Merchants are increasingly looking to offer customers a range of payment methods to streamline the customer payment journey, boost revenue and cater to customer preferences, including a growing number of crypto-native users.

Similarly to Open Banking, stablecoin acceptance services also have the potential to increase competition and innovation in the payments market by offering merchants a further alternative to card based payments for customers paying via stablecoin. The technology offers the scope for faster settlement times and lower transaction costs to traditional payments rails.

Often this may involve receipt of the stablecoin by stablecoin service provider from the customer, conversion of the received stablecoin into fait currency, followed by remittance of that fiat currency to the relevant merchant.

Regulatory landscape and challenges for the UK stablecoin sector

One of the key challenges in the UK market has been the UK's pace of delivery of a stablecoin regulatory regime. There are growing concerns that the UK is lagging behind other jurisdictions where the regulatory framework is more advanced or already in place (see here for our MiCAR Tracker for information on implementation of the EU regime).

The regulation of stablecoins in the UK is tied up in the wider cryptoasset regulatory regime which has been progressing steadily, with a flurry of developments in the last month: 

Draft Statutory Instrument

On 29 April 2025 when HM Treasury (HMT) published a long awaited draft statutory instrument (SI), the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025, and accompanying Policy Note. The draft SI sets out provisions for new regulated activities for cryptoassets under “the RAO”. As part of this draft SI, the Government proposes to introduce new categories of specified investments including “qualifying cryptoassets” and “qualifying stablecoin”. 

• “Qualifying cryptoassets” are defined in Article 88F and are a subcategory of FSMA “cryptoassets” which are fungible and transferable, and which includes “qualifying stablecoin”; excluded from this definition are “specified investment cryptoassets” and other instruments that could meet the definition of a “cryptoasset” under FSMA, such as tokenised e-money or tokenised deposits.
• “Qualifying stablecoin” is defined as a stablecoin that references one or more fiat currencies, and seeks to hold those 10 fiat currencies or fiat currencies and other assets as backing assets to maintain a stable value.

The draft SI then creates the new specified activity of issuing a qualifying stablecoin in the UK. There are three components to this activity, which are: offering, redemption, and maintaining the value of the qualifying stablecoin. Undertaking any one of these three activities from an establishment in the UK for qualifying stablecoin will bring firms within the regulatory perimeter for issuance. 

Interestingly this is broader than originally anticipated and is defined to include those persons who arrange others to issue stablecoins, redeem stablecoins or maintain the value of stablecoins.

There are also a number of other new specified activities in relation to qualifying cryptoassets more generally such as safeguarding, operating a qualifying cryptoasset trading platform and dealing in qualifying cryptoassets as principal or agent. Firms that are dealing directly or indirectly with a UK consumer will need to be authorised in the UK regardless of whether the firm is based in the UK or overseas. Where a firm is dealing with a UK consumer through an intermediary, they will not need to be authorised if there is an intermediary between them and the UK consumer that is a firm authorised to operate a qualifying cryptoasset trading platform or deal in qualifying cryptoassets as principal.

In relation to this territorial scope, to ensure that issuance and market abuse regimes are ‘activated’ for tokens bought and sold by UK investors, the Government is also providing a Disclosure/Admission regime for cryptoassets, relevant to intermediaries. If all international cryptoasset exchanges were to seek authorisation in the UK as cryptoasset intermediaries (and not as cryptoasset trading venues), this would be problematic since the proposed issuance and market abuse regimes ‘hang off’ regulatory trigger points that are controlled by authorised cryptoasset trading venues.

The Government has also said it will not proceed with amending the PSRs 2017 to bring UK-issued stablecoins into regulated payments at this time (as originally proposed). The Policy Note of 29 April notes that this does not mean that stablecoins cannot be used for payments in the UK, but simply that they will remain unregulated for payments for the time being (save where caught by one of the new proposed specified activities in relation to qualifying cryptoassets). 

Legislation is expected to be laid later this year according to the Regulatory Initiatives Grid (Grid)[1]. Following HM Treasury legislation being laid, new RAO Activities will come into the UK Financial Conduct Authority’s (FCA’s) remit, alongside an Admissions and Disclosure and Market Abuse regimes.

FCA Rules and Discussion Papers

More recently on 2 May 2025, the FCA published DP25/1, a Discussion Paper on regulating cryptoasset activities which also poses a question of the use of qualifying stablecoins. DP25/1 is the latest policy publication in the FCA’s crypto roadmap on the future of cryptoasset regulation, including stablecoins. The FCA’s Crypto Roadmap, published by the FCA in November 2024, sets out the planned FCA publications for the rules and requirements to bring the new cryptoasset and stablecoin regime into effect. 

The FCA has so far also published DP23/4 in November 2023 on developing a regime for fiat-backed stablecoins and in December 2024 it published DP24/4 outlining proposed frameworks for admissions and disclosures and a market abuse regime for cryptoassets (mentioned above).

Discussion Paper 25/1 touches on stablecoins specifically in the context of risks from cryptoasset lending and borrowing. The FCA is concerned that in their current form, cryptoasset lending and borrowing business models carry significant risks, including in relation to margin calls in a borrowing context due to the volatility of cryptoassets. 

Interestingly, it is the FCA’s assessment however that the use of qualifying stablecoins issued by an authorised stablecoin issuer, can reduce price volatility and risk to retail consumers since using a qualifying stablecoin as collateral would significantly reduce the likelihood of a margin call occurring. Similarly, under the cryptoasset lending model, the FCA perceives that lending in qualifying stablecoin and receiving qualifying stablecoin as the reward, would likely stabilise interest rate rewards for retail consumers and provide increased confidence in the market.

The intention then of Question 40 in DP 25/1, is to gather views on whether it is proportionate to provide an exemption to restricting retail access to these products where the model only allows them to:(i) lend qualifying stablecoins and, (ii) borrow where the collateral is a qualifying stablecoin. 

This is encouraging to see in a stablecoin context since it could mean that we see further similar exemptions specifically in relation to qualifying stablecoins and that the regulators are mindful of the unique characteristics of these kinds of crypto assets and the benefits they can bring to the market.

The deadline for comments on DP25/1 is 13 June 2025. 

What’s next?

All eyes will now be on the FCA as industry eagerly awaits further detail on the FCA’s forthcoming rules. The hope is that the FCA will balance the need for consumer protection whilst not hampering the potential of stablecoins in enhancing global payments technology. 

A series of Consultation Papers on the regulation of stablecoins are expected in Q2 this year. They will address the proposed rules and guidance for issuing a qualifying stablecoin and safeguarding qualifying cryptoassets. A further consultation is expected to include prudential considerations and safeguarding for qualifying stablecoins. The Grid anticipates that four Consultation Papers on the regulation of cryptoassets are planned for this year.

The aim is to get final rules published in 2026. 

See here for our detailed Bird & Bird UK Payments Horizon Scanning Roadmap for Q2 2025.

What’s does this mean longer term?

It is a critical time for cryptoasset regulation in the UK and the industry is eagerly awaiting clarity, speed and an understanding by regulators of the unique characteristics of stablecoins and digital assets more broadly to enable growth. Getting the design of the regime right will be essential. 

Only then will this new and innovative technology be able to take off in the UK and for merchants and customers alike to benefit from stablecoin acceptance services as part of the UK’s retail payments infrastructure. 

The challenges of global cross boarder payments is a persistent pain point for the digital economy. As noted in the Government’s National Payments Vision, “the innovation, efficiency and economic benefit such developments could bring is potentially transformational”.

Please contact us at Bird and Bird for any more information on the above. We’re here to help firms looking at designing or rolling out products in this sector.

[1] The Regulatory Initiatives Grid was published on 14 April 2025 by the Financial Service Regulatory Initiatives Forum (the coordinating body for key financial regulators in the UK), setting out the planned regulatory initiatives for the next 24 months.