UK Set to Regulate Stablecoin Issuers and Custodians Like Banks - What This Means for Crypto

London's financial watchdogs are drawing up plans to treat stablecoin operators with the same scrutiny as traditional banks—because nothing says 'innovation' like fitting crypto into century-old regulatory boxes.

The Bank of England and FCA want stablecoin issuers and custodians to face capital requirements, liquidity rules, and operational standards identical to conventional banking institutions. This move would fundamentally reshape how digital assets operate within UK borders.

Industry insiders whisper this could either legitimize crypto overnight or strangle innovation in compliance paperwork—because if there's one thing finance loves more than money, it's creating more forms to fill out.

The regulatory squeeze comes as stablecoins increasingly function like digital cash while operating in regulatory gray areas. Authorities clearly decided if it looks like a bank and acts like a bank, it should be regulated like a bank—even if it runs on blockchain instead of marble floors.

Expect pushback from crypto natives who argue blockchain's transparency makes traditional banking safeguards redundant. Also expect regulators to ignore them completely.

UK FCA plans

Until now, UK crypto users mostly encountered the FCA through rules on promotions and anti-money laundering checks. The consultation paper goes much further. It proposes direct oversight of stablecoin issuers, custodians, and crypto-asset trading platforms (CATPs).

For investors, that means the wallets, exchanges, and coins they rely on could soon be subject to the same governance and resilience standards as traditional financial institutions.

The regulator has also clarified that firms need official authorization before serving customers. This condition should, in theory, reduce the risk of sudden platform failures or unclear accountability.

David Geale, the FCA’s executive director of payments and digital finance, said the proposals are designed to strike a balance between innovation and protection. He explained:

“We want to develop a sustainable and competitive crypto sector – balancing innovation, market integrity and trust.”

Geale noted that while the rules will not eliminate investment risks, they will create consistent standards, helping consumers understand what to expect from registered firms.

Why does this matter for crypto holders?

The UK regulatory framework shift would provide safer custody of assets, better disclosure of risks, and clearer recourse if something goes wrong.

However, the regulator was also frank in its submission, arguing that no rulebook can eliminate the volatility or inherent risks of holding digital assets. Instead, the focus is on ensuring that when consumers choose to invest, they do so within a market that operates transparently and fairly.

According to the FCA:

“We focus our engagement on areas of greatest harm and take a more flexible approach, with less intensive supervision for those firms demonstrably seeking to do the right thing. We also intend to make our areas of focus predictable so that firms have an opportunity to make positive change without the need for regulatory action.”