20 May 2025
by Payments Intelligence
What is this article about?
The UK’s new regulatory framework for stablecoins and its implications for payment firms.
Why is it important?
It sets the legal foundation for stablecoins in financial services, shaping how firms can operate and innovate.
What’s next?
Firms should prepare for compliance, monitor regulatory developments, and explore stablecoin use cases in payments.
The UK government has taken a significant step towards regulating stablecoins, laying the groundwork for their gradual integration into the financial system. Under the draft Financial Services and Markets Act 2000 (Cryptoassets) Order 2025, stablecoins will fall within the scope of the Financial Services and Markets Act (FSMA) as regulated financial instruments—though notably not yet as recognised payment methods under current payments legislation.
While stablecoins hold promise for both retail and wholesale payments, the current framework concentrates on issuance, custody, and trading, rather than payment functionality. This suggests a cautious but flexible approach, signalling that the government may adjust its stance as adoption and use cases evolve.
For payments leaders, this is a strategic moment to assess positioning in a market where regulated digital assets are increasingly part of the mainstream conversation.
The draft Statutory Instrument (SI) introduces new regulated activities under FSMA for cryptoassets and stablecoins. Specifically, it:
Crucially, the government has decided not to proceed (yet) with amending the Payment Services Regulations 2017 (PSRs 2017) to bring stablecoin-based payments into the regulated perimeter. This means that while stablecoins can be used for payments, they are not currently regulated as payment instruments, and users will not benefit from protections similar to Payments Services Directive 2 (PSD2) frameworks.
Instead, stablecoin issuance and related activities will now be governed by a bespoke FSMA regime, aligning them with other regulated financial services. It will allow the government to monitor adoption and risks before further integration.
The introduction of a regulated stablecoin framework raises several strategic considerations for payments and compliance leaders.
Ultimately, positioning effectively now will allow firms to participate in the market shift towards digital assets, while staying aligned with regulatory developments as they unfold.
While the current framework focuses on issuance and related activities, the government has left the door open for future regulatory expansion into payments. Its stated position is to “stand ready to respond” as use cases evolve and adoption increases.
In practical terms, this means that stablecoins could be brought under the Payment Services Regulations (PSRs) more quickly if certain triggers are met—such as rising retail adoption, systemic use in wholesale settlement, or emerging risks around market stability and consumer protection.
For payments leaders, this points to a fluid regulatory environment. Firms will need to remain agile, monitoring developments closely and preparing for the possibility of sudden policy shifts that could reshape the compliance landscape.
As the regulatory picture takes shape, payments and compliance teams should begin preparing for the operational and strategic implications—even before stablecoins are formally integrated into payments law.
Compliance functions should review existing or planned activities involving fiat-backed stablecoins, ensuring they align with new FCA authorisation requirements covering issuance, custody, and trading. Business units across treasury, legal, and operations should be briefed accordingly.
Firms should also stay close to regulatory developments. The FCA is expected to issue further guidance on custody, staking, and platform operations. Meanwhile, future updates to the Payment Services Regulations could extend the perimeter to cover stablecoin-based payments more directly.
Beyond compliance, it’s worth assessing where stablecoins might deliver real-world value. B2B payment flows, international supplier settlements, and on-chain treasury operations could benefit from faster, lower-cost alternatives to legacy systems. Stablecoins may also complement existing rails like Faster Payments, SEPA, or card networks—provided the integration and risk management frameworks are in place.
By investing in readiness now, firms will be better positioned to act quickly once the regulatory path becomes clearer.
The UK’s stablecoin regime signals a move away from speculative cryptoassets and towards integration with the regulated financial system. For payments firms, the implications are not disruptive in the short term, but they are strategically important.
While stablecoins are not yet recognised as payment instruments, the regulatory foundation for their issuance and custody is now in place. This points towards a hybrid future—where stablecoins could sit alongside conventional payment methods, particularly in cross-border and high-volume use cases.
Firms that engage early—by aligning with compliance requirements, forming partnerships, and modernising infrastructure—will be well positioned to respond quickly as regulation evolves and adoption gathers pace.
The UK’s new stablecoin rules offer regulatory clarity for issuers, setting the stage for future integration into mainstream payments.
The UK’s new crypto regulation redefines compliance for payments firms, requiring FCA authorisation and raising standards across the sector.
Ten key regulatory developments merchants must track in 2025–26, from fraud liability to fee reform, stablecoins, and accessibility.
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