The Financial Conduct Authority has published proposals for issuing stablecoins, which it said will allow UK crypto firms to “compete internationally”.
Currently the market is dominated by two US currency-referenced stablecoins.
Law firm CMS has called proposals “encouraging” but urged the FCA to listen industry feedback.
Stablecoins aim to maintaining a stable value by being pegged with a national currency.
However, the FCA said the global market is dominated by two US dollar-referenced stablecoins, which represent around 90 per cent of the market.
Research by the regulator found UK consumers were more likely to get into stablecoins if the area had increased regulatory protections.
It said the proposals are intended to support innovation and allow cryptoasset firms set up in the UK to compete internationally, while providing “appropriate protections” to consumers.
David Geale, executive director for payments and digital finance at the FCA, said: “At present, crypto is largely unregulated in the UK.
“We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust.”
The regulator said in support of the “opportunities stablecoins present to financial services and the broader economy” it will look at adding a specific focus on the cryptoassets in the coming months.
Consultation on the proposals opened on Wednesday (May 28) and will run until July 31.
Mike Ringer, a financial services partner with law firm CMS, said: “It’s encouraging that these proposals are intended to allow cryptoasset firms that set up in the UK to compete internationally.
“But it is vital that the FCA listens to industry feedback to ensure that this objective is met.
“This is particularly so given the Treasury’s current intention to apply the stablecoin issuance authorisation requirement only to firms established in the UK, giving issuers the choice to remain offshore.”
Earlier this month, the FCA said it was considering restrictions on using credit to purchase cryptoassets.
The Bank of England is set to publish its own consultation paper on stablecoins that “expect to operate at a systemic scale” later this year.
Sarah Breeden, deputy governor for financial stability at the Bank of England, said this will respond to industry feedback around allowing some return on backing assets.
She said: “We welcome the proposals the FCA have published as part of building the UK’s stablecoin regime.
“We continue to work closely with the FCA to ensure the integrity of the UK’s stablecoin regime, including how firms transition within the regime.”
tara.o’connor@ft.com
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