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Ep 59: Stablecoins Across Borders
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Ep 59: Stablecoins Across Borders
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Transcript
Introduction to the Podcast
00:00:06
Speaker
Hello and welcome to this Owl Explains Hootenanny, our podcast series where you can wise up on blockchain and Web3 as we talk to the people seeking to build a better internet.
00:00:17
Speaker
Owl Explains is powered by Avalabs, a blockchain software company and participant in the Avalanche ecosystem. My name is Silvia Sanchez, project manager of Owl Explains, and with that, I'll hand it over to today's amazing speakers.
Stablecoin Discussions in 2025
00:00:34
Speaker
Hello everybody and welcome back. It seems like stablecoins keep getting name dropped in every Web3 policy conversation these days. And I mean, it makes sense. In fact, we've done four events focusing only on stablecoins this latter part of 2025. We've done stablecoin events in Argentina, in DC, in Singapore, in the UK. And it was a blast. We love our stablecoin events.
00:00:56
Speaker
And this is an illustration that stablecoins are a key part of the Web3 space. But how they're treated depends on where you're standing, literally. And today we're mapping part of this stablecoin universe across Hong Kong, the UK, Australia, and the EU with three of the sharpest policy
Expert Insights on Stablecoin Policy
00:01:13
Speaker
minds around.
00:01:13
Speaker
We have Ursula McCormack, who is joining us from King & Wood Mallesons, and she'll be sharing insights primarily from Hong Kong with a look into Singapore and Australia as well. Laura Navratnam is bringing the UK perspective, which is evolving quickly post-Brexit and getting very interesting.
00:01:29
Speaker
And we also have Andrew Whitworth, who is here with the EU Lens, especially as Mika continues to shape the conversation across Europe. So, hi everybody. Thank you so much for joining us.
00:01:40
Speaker
Thank you. Thanks for having us. So before we get too deep into regulation, let's get grounded in definitions and then the naming. In your jurisdiction, how is a stablecoin legally defined if it's defined at all? What categories or frameworks currently apply?
00:01:54
Speaker
I'm happy to kick off if that makes sense. So not least because the EU with Mika kind of kicked off the global regulatory trend towards regulating stablecoins. um So yeah, so stablecoins in the EU are regulated under Mika, the Markets Crypto Assets Regulation.
00:02:08
Speaker
ah That came into force for stablecoins in July last year, 2024. Mika defines, it doesn't talk about stablecoins. It defines what we call stablecoins in two different ways as e-money tokens, EMTs, or asset reference tokens, ARTs, depending on the nature of the banking asset.
00:02:23
Speaker
um And Mika as a whole, having created this legal definition, then talks about the issues of these things. And luckily this week, they just announced, oh they did a report, um and since coming into force, there are now 17 licensed EMT no stablecoins.
00:02:41
Speaker
Cool. ah Does it make sense for me to go next then? Great. Okay.
Regulatory Approaches in the UK, EU, and Hong Kong
00:02:44
Speaker
So um in the UK, we are still defining what um what legally a stablecoin is. So um our UK treasury did put out a draft statutory instrument earlier this year, which looks to define um a new ah category of specified investment, um which would be um qualifying crypto assets and within that qualifying stable coins are a subcategory. um It's important to note, though, that
00:03:11
Speaker
We call them specified investments in the UK, but that's not to be confused with what you would think of as an investment in a US context. like the The whole kind of investment commodity discussion isn't doesn't apply in the same way in the UK. Specified investment just means a a kind of category of ah specified product for in in layman's terms. um As you can see, I'm not a lawyer.
00:03:35
Speaker
um So we have this definition of of qualifying ah stablecoin. And essentially, that doesn't look to how the stablecoin is being used per se. It looks to it being fiat backed.
00:03:48
Speaker
It looks to that it's ah that it's. um ah being ah being issued in a certain way. And essentially, then what happens if if this plays out is that there'll certainly be certain regulated activities that apply at the top of that qualifying stablecoin. So where we are in the process at the moment is that Treasury is likely to finalize our statutory instrument potentially before the end of the year, so very, very soon. And then that will give the UK regulators the ah the the purview to actually bring qualifying stablecoins within their regulatory perimeter. So that's the sort of flow through that happens in the UK. Treasury needs to set the the legal framework for the Bank of England and for the FCA, and then they will apply their rules over the top of it. So it's a very interesting moment at
00:04:42
Speaker
ah right now in the UK. And as of beginning of next year, we should have that framework fully in place to allow the FCA and the Bank of England to regulate those, you know, much as is happening in the EU at the moment.
Global Perspectives on Stablecoins
00:04:52
Speaker
Okay, and then i'll I'll jump in for Hong Kong, which has decided to call the stable coin a stable coin as a little bit of a contrast, but effectively two tracks. So there's a stable coins ordinance that regulates the issuance and the offer of fiat-referenced stable coins. And so really anything that's ah ah backed by a single fiat currency and potentially down the track other designated underlying assets. So potentially down the track, as something like gold might well be referenced. and That said, if it is an instrument that is a regulated product under our Securities and Futures regime,
00:05:37
Speaker
ah So if it is indeed a security, and there are a lot of stablecoins that could well be securities, then it bounces out of that stablecoins ordinance and it goes down the usual securities and futures track. And that's a really important distinction that Australia also follows as ah as a slight contrast.
00:05:55
Speaker
ah Now, under the Australian regime and the Australian proposals, a stablecoin could be a financial product, and follow the the usual regulatory regime for financial services. And it could take a number of different characterizations under that regime. But there is a proposal and under the payments reform to incorporate a fresh concept of a tokenized stored value facility. So again, backed by a single ah currency, but then taking ah the payments route rather than the financial services route.
00:06:33
Speaker
Perfect, thank you. I think that's a great intro, just like to set to set the stage across different parts. um And I'd like to talk about moving from theory to practice, what does treatment actually look like in the jurisdictions that you're representing, specifically around things like licensing and who can issue or things like reserve requirements, especially for fiat-backed stablecoins? What would that look like?
00:06:56
Speaker
Maybe I'll start in reverse and and then and then pass back to my colleagues. um One of the interesting things about the things about the Hong Kong regime is that um if I follow the stablecoins ordinance route, I'm comfortable that I don't have a security or or something else that's already regulated, um then at this point in time, that is something that um ah would need to be approved by the monetary authority ah for issuance to the general public.
00:07:23
Speaker
ah But there is a pathway for other stablecoins in the market to be offered, but only to professional investors. And so really for those categories of stablecoins that are in that bucket, I've really got a very narrow field of people who can access that instrument.
00:07:42
Speaker
as of the 1st of August of this year, ah but only in relation to offers. So um at the moment we're threading the needle for a lot of platforms and and regular companies in relation to how they interact with those types of stablecoins. But again, if I'm down the securities route, maybe I have a little bit more flexibility. So it's a really interesting use case where really the the regulators have narrowed that field and not only require that to be limited to professional investors, but must only be offered by an entity that's regulated either by the monetary authority, like a bank, or ah by someone like a a broker dealer that's regulated by the Securities and Futures Commission.
00:08:25
Speaker
cool Okay. Oh, I can go next. um So actually, crypto assets in general are are broadly outside of regulation as of this moment in time. As to say, that that situation is is rapidly changing. Now, that doesn't mean they might not fall within regulation. For example, they might be captured by other regulated activities. They might be captured under e-money, depending on the structures. So there are existing buckets of regulation they could fall into. But as a category in and of themselves, they aren't. There are two kind of big exceptions to that. So currently we have an MLR registration process in the UK. So crypto asset firms need to register with the FCA for that. That is a registration, not an authorization. So it is a different bar to meet and it also comes with different supervision and enforcement powers. But that is a very AML focused process. And that's been in place for a few years. you know, maybe 51, 52 firms are currently registered under that process.
00:09:26
Speaker
ah We also have another piece of legislation, which is a financial promotions regime. um And that applies specifically to the marketing of crypto assets. And that's a very interesting piece, because unlike other areas of yeah UK regulation, which focus on the jurisdiction, the scope of ah the FPA, the financial promotions order is actually quite extraterritorial. So it applies to potentially firms wherever in the world they are based, if they are selling or marketing to UK customers. So it's very much has a nexus on the customer basis rather than the firm itself. um And that, again, focuses very much on the marketing promotion. So firms would require
00:10:08
Speaker
um either themselves to be authorised or to have an MLR registration, and then they can approve their own financial promotions. If they are not, then they would need a an outside approver essentially to approve those those promotions for them. um it's um It's been a a quite a tricky piece of legislation to implement and enforce, I think, and hasn't been ah some of the smoothest regulation at all stages. I think it was intended to be a bit of ah a temporary stop until full legislation came in came in place. um And obviously, now that regulation is coming in, there will probably be a review of how how the financial promotions piece is treated more generally. um But once a full regime for crypto assets comes into force, which the FCA and the Bank of England are saying will
00:10:56
Speaker
will begin as of next year, then we will see a full authorization process. So firms will come to the FCA's gateway, um they would apply for a license for a particular crypto asset activity, whether that's whether that's issuance, whether that's custody, whether that's dealing as agent, for example, and there are a number of specified activities. um And then those firms can conduct those activities. So that's sort broadly the the shape of how the regulation is going to work in the UK.
00:11:26
Speaker
I mean, so the EU is the EU and we have just the most detailed regime you can imagine. um and This is Mika and it takes up you know all of many hundreds of pages of it. um So Mika, as I said, splits stablecoins into E-money tokens and asset reference tokens, depending on the nature of their backing. So a fiat reference stablecoin would be E-money token, EMT.
00:11:47
Speaker
And MECA really goes into a lot of detail, both in its direct, the MECA Level 1 text, as it's called, and also in the Level 2s, which are the sort of rules and guidelines that support MECA that have been written by the European Supervisory Authorities, the ESAs, the EBA mainly.
00:12:03
Speaker
um So, I mean, in there, the Amiga prescribes, well, firstly, says you have to launch a white paper. It tells you what the template of the white paper has to look like, what has to be written in there. It provides issuing requirements, crucially, mandates one-for-one backing of the EMT with liquid and stable backing assets. Interestingly, in the EU, 30% of those have to be held in in commercial bank deposits, which is different to some other places. That rises for significant stable points, and they're designated 60%. Firms have to be based in the EU. um There are limits on the usage of foreign issued stablecoins in the EU. So maximum 1 million transactions a day or 20 million euros of value um of a foreign issued stablecoin.
00:12:47
Speaker
At which point you'd have to reduce it or stop out your activity. So, yeah, so Mika is very detailed on this. I think worth adding in, though, obviously, one of the major benefits of Mika is that it is a single market piece of legislation. So you you get licensed or a firm gets licensed in one ah EU member state, and it can then passport its activities across the entire EU as if it was domestic market, at least the domestic market. I'll just say that's a huge advantage. um Boy, I wish we had something like that across the Asia Pacific and that ah ability to hop from one market to another and for a jurisdiction to recognise the quality of supervision in one, I think is, you know, would be yeah would be fantastic to see over time.
00:13:31
Speaker
Yeah, I mean, I don't want to ah pick pick other countries, but I also do a fair amount work with the UAE. And is one country and it has about eight different regimes, depending on what you're trying to do there. So the the idea of having one regime for 27 Europe member states is is is is good. Has for which we'll talk about later. But anyway, anyway that's the meager approach to stablecoins.
00:13:50
Speaker
and And that's ah kind of like my next point, like stepping back a bit now. And I also wanted to hear like your personal take on this from your view, what's working well and what's still confusing or counterproductive in your area?
00:14:04
Speaker
Cool. Well, i can I can start with this one. um So I think the UK has had a bit of a challenging start. I think it's fair to say we've been a bit slow to start the race, um but things are moving quickly now. The FCA published a roadmap at the end of last year. It is meeting that roadmap. It has been publishing policy consultations at pace.
00:14:28
Speaker
We are expecting... as many as three, maybe even four before the end of the year. um So it's going to be a busy Christmas for us in the yeah UK. um And then policy will start to be finalized in the new year. um And obviously, we have the benefit of looking to other regimes like Mika to you know learn from their mistakes, um adopt the good bits.
00:14:46
Speaker
um I think there are definitely two things that I would underscore. And I think Ursula sort of mentioned one of these, and that's around maybe the concept of reciprocity. um you know We completely appreciate that there's not going to be one global regime for all these these different stablecoins, but actually to the extent that ah different regulators can at least um have some degree of reliance on other regulators, particularly where the ah principle underpinning the regimes are aligned. um So if you look to the Genius Act in the US,
00:15:19
Speaker
that acknowledges some degree of reciprocity. And I think that that would be ah a a very good place for a jurisdiction like the UK to start. and The the us ah UK task force was announced a little while ago, and I think that should definitely be one area where um you know the UK could could really focus its attention because ultimately, you know these stablecoins can be issued from anywhere in the world and they are they are global. um And I think one thing that the UK has done very sensibly is um not require an issuer to be UK based.
00:15:55
Speaker
ah It will regulate you if you are UK based, but a GBP stable coin can be issued anywhere in the world. um I think that is a very sensible perspective when creating a regulatory perimeter. But then obviously you have to start to think about ah incentives to onshore those those stablecoin issuers, because that's the goal here. um If we want to ensure, you know, a economic growth, we want to ensure we have in the UK GBP stablecoins, we're not relying on on a dollar stablecoin. We need to make sure we're bringing firms into the perimeter. They are being regulated and they are incentivized to do so um so. I think that's one point I would make. and The other point on the
00:16:34
Speaker
what is not working so well. and We in the UK have got a ah proposal around systemic stablecoins. Now, the the Bank of England says that being the only bank that ah has proposed such a regime for systemic stablecoins, we're sort of ahead of the game. um They also believe that providing things like, um you know, being a backstop for for systemic stablecoins also is ah is a unique advantage over potentially other regimes.
00:17:04
Speaker
um But I think there are still some some niggles in that regime that need to be worked out. We've seen a lot of progress from where the bank started on its on its proposals back in November 2023, when it first issued its discussion paper. um Two years on, the the proposals reflect that.
00:17:22
Speaker
a refinement of thinking. So, for example, when they're not requiring 100% of backing assets to be held in central bank deposits, that's now been lowered to 40%. But that would also be unremunerated. So, there are still aspects of that which maybe are out of step with other jurisdictions such as the u So from ah what what is there still to be done? I think there are some some key points that the UK really needs to get right to make sure we can we can kind of really join the race and onshore as much of this as possible.
00:17:58
Speaker
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Speaker
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The Future Role of Stablecoins
00:18:35
Speaker
With multi-chain compatibility, Core lets you view and manage assets across Avalanche and other supported networks. I might just speak up, Laura, just on excellent point, you a whole world of crypto apps and tools to explore direct from your wallet get the wallet that does more download cor today i might just speak up laura just just on that um excellent point you know ah I think there'll be a degree of you know competitive spirit around you know issuance and locations. I'm i'm sitting here in Vanuatu on a project and was surprised and delighted to see there's a stablecoins regime here as well. So you can be sure that offshore jurisdictions will continue to ah you know, to to ah push to remain relevant um to international finance in that way and act as a hub.
00:19:25
Speaker
um I also wanted to mention just ah again to pick up on a great point from Laura around the sort of currency availability. The most dominant stablecoins are US dollar stablecoins. So when you've got an ecosystem, say in Australia, that really requires Australian dollar trading pairs and Australian dollar, you know, sort of liquidity in stablecoin form. a domestic backed currency is very stablecoin is very important. So I think providing those glide paths to show how that can be done is very important. So some clarifications that came out of the the corporate regulator, securities regulator ASIC um in Australia designated certain types of stablecoins as having a more streamlined stablecoin compliance approach once in the hands of intermediaries to make it easier for that that you know that stablecoin to move within the economy and I think that provides an enormous flexibility.
00:20:26
Speaker
I also just wanted to briefly raise that the other sort of pain point or learning point is on the on the part of those who bank stablecoin issuers or provide other services to really understand their duties during the lifecycle of a stablecoin. So when there are um broad duties as there are around sort of lifecycle monitoring or in relation to AML and sanctions and related measures um to really understand what that will mean in practice, what that means for technology selection, so that they know whether or not they really need to watch where those stable coins go and whether or not they need to require their issuers to intervene in in transactions.
00:21:09
Speaker
And those are all great points because, and I think you also alluded to this earlier, Laura, that it's not necessarily about but having like just one global regime, but about having similar principles and making it just easier because we have this this global type of technology and it's not like you can get all the regulatory bodies to agree on everything, but just having these common principles.
00:21:31
Speaker
principles that makes it easier to like if you're a developer or if you're just a stable point project that the rules are a bit more clear and not so crazy not so fragmented um and just before we wrap up because i know we're almost out of time and this is more like a rapid fire um survey episode i wanted to hear one final thought from you and it's not about how stable coins are regulated or should be regulated because i'm sure that has a lot of um branches we could continue to discuss but more about what should stable coins be for what do you think the role of stable coins should be in the future of the internet not not not just to say oh we have this digital type of money this virtual type of of money but like what makes them special why are we spending all this time talking about them and searching how to regulate them
00:22:19
Speaker
I think, I mean, from my side, at least, I think you hit a nail the head. I mean, what stablecoins are interesting because they are the representation of traditional money on chain. So you can suddenly use them for things that you need money on chain for.
00:22:32
Speaker
Previously, before stablecoins were invented, you had to use an unbacked crypto asset, which is highly volatile, whichever one you chose, and you wouldn't necessarily know what value you're going to exchange it for. A stablecoin does way with that by obviously referencing a fiat currency.
00:22:45
Speaker
um That said, I mean, it is private money, right? And in traditional money world, we have private and public money. So I i do assume this is a highly political question in every country.
00:22:58
Speaker
But I think most jurisdictions will create some form of CBDC, by which I mean a public form of on-chain money. And these will need to operate with ah stable coins and and other forms of of tokenized money, but also traditional money in the future, a mix of all of these things.
00:23:14
Speaker
That's not to say necessarily a CBDC will come and everyone will do all their transactions and that. No, it doesn't have to be like that. um But I think the option will exist and it will be used either for either specific use cases or um or almost as a backstop of the overall system. So there's always a way in and out of different forms of of of on-chain money.
00:23:32
Speaker
Yeah, I absolutely agree with that. And and I think there's there's a lot of regulatory nervousness around the world because there is a perception. and ah I don't think it's a fair perception that it's one or the other of these things. You know, we're having conversation about is it stable coins or or is it tokenized deposits or is it a CBDC? and And actually, the reality is these things are going to operate seamlessly together if we can get this right. And in every jurisdiction that's going to look different because the needs of the people are going to be different and the needs of the markets are going to be different. um And we you know we need to think about the the wholesale and the retail context here as well. And and I think the you know the role of of regulation here is not to define what that looks like, but it's to set the guardrails and prevent
00:24:20
Speaker
the the the bad actors and the bad outcomes, but allow for a flourishing ecosystem to happen in the middle without it saying, this is what should exist and this is what shouldn't.
00:24:31
Speaker
Yeah, and I'll just, um ah to those excellent points, I'll just add that certainly seeing this is a ah really functionally driven discussion, you know, now, while ah many might have aspirations for globally circulating stablecoins, we're really seeing, you know, ecosystem-specific use cases where it might well be just for a confined, super retail, consumer-focused, you know, arrangement, or it could be for the support of back-end services for for payments,
00:25:00
Speaker
ah to support say the the the remittance cross-border in a corridor that requires you know involves a significant cost to move money at this point in time. So I think we've we've got ah a far more sophisticated interrogation of a given stablecoin um now in each case. And we're certainly seeing regulators that are reviewing stablecoin applications. HKMA is a great example. that really want to see a yeah a valuable use case behind every stablecoin.
00:25:33
Speaker
that's That's great, and I think it's a really cool way to to conclude and focus that, okay, we have this new type of technology, but I also think that they're part of this building of this next generation of internet infrastructure, um and it's also understanding, okay, the purpose and the different avenues that they could take. um But I know we're out of time, so just once again, thank you all so much for bringing your time, your brains, that cross-jurisdictional stamina and perspective to this episode. And again, if this and stablecoin topic or in general, whether you whether you have a tokenization or CBDCs or just all of these different components of Web3 that are going to shape this next generation of of the internet. It's voices like yours that help shape the regulatory scaffolding and the understanding underneath. So once again, thank you all so much for joining us. Thanks again to our listeners for tuning in.
00:26:25
Speaker
And we'll be back with more hot blockchain policy topics next time. Thank you all.
00:26:32
Speaker
We hope you enjoyed our Hootenanny. Thank you for listening.
Conclusion and Further Resources
00:26:35
Speaker
For more hootful and hype-free resources, visit owlexplains.com. There, you will find articles, quizzes, practical explainers, suggested reading materials, and lots more. Also, follow us on Twitter and LinkedIn to continue wising up on blockchain and Web3. That's all for now on Owl Explains. Until next time.