PERG 18.5 Activity: issuing a qualifying stablecoin

Question 5.1: What does it mean to ‘issue’ a stablecoin under article 9M of the Regulated Activities Order?

Article 9M of the Regulated Activities Order provides that ‘issuing a qualifying stablecoin’ is a specified kind of activity. Article 9M identifies several elements that together constitute the regulated activity. The person carrying out the following activities must be the person who created the qualifying stablecoin or on whose behalf it was created (or must be a member of a group for whom it was created):

Question 5.2: Does carrying on only one of the limbs in article 9M of the Regulated Activities Order amount to ‘issuing a qualifying stablecoin’?

Article 9M of the Regulated Activities Order should be considered as a whole; carrying on only one element of article 9M does not amount to issuing a qualifying stablecoin. For example, a person who only performs the redemption activity will not be issuing a qualifying stablecoin. However, they could be issuing a qualifying stablecoin where they both carry out one element of the 9M activity and arrange for another person or other persons to carry out the remaining elements.

Question 5.3: How does redemption form part of the issuance activity under article 9M of the Regulated Activities Order?

Redemption is identified in article 9M of the Regulated Activities Order as an element of issuing a qualifying stablecoin (in article 9M(2)(c)(i)). Redemption on its own, or arranging for another to redeem, does not constitute issuing a qualifying stablecoin. As an exception to this, article 9M(4)(b) provides for a person who assumes an undertaking to redeem to be deemed to have created the stablecoin and be carrying on the offering and backing asset limbs of issuing a qualifying stablecoin (see PERG 18.5.6).

Question 5.4: Does providing only technology, infrastructure or software in relation to issuing a qualifying stablecoin amount to the regulated activity?

A person whose role is limited to providing technology, software, infrastructure, connectivity or minting capability used by another person in that person’s issuance arrangements, without undertaking activities described in article 9M(2)(a) or (c)(i) and (ii) of the Regulated Activities Order, would not normally be carrying on the regulated activity of issuing a qualifying stablecoin. This would generally include a person acting in a white-labelling arrangement whose role is limited to technical provision and does not involve arranging for the offer, redemption or holding of backing assets by another person. Whether a person is the issuer depends on the substance of the arrangements and whether that person satisfies article 9M as a whole. This is fact-dependent, and a person should also consider whether they are carrying on any other regulated activity.

Question 5.5: What authorisation is needed by a person to carry out one or more limbs of article 9M of the Regulated Activities Order on behalf of an issuer?

Article 9M of the Regulated Activities Order contemplates a single issuer for the regulated activity. A person that carries out outsourced functions in relation to a stablecoin is not necessarily issuing a qualifying stablecoin. Where all of the relevant offer, redemption and reserve-holding limbs are carried on by person B under arrangements made by A, article 9M(4)(c) provides that only A, and not B, is treated as carrying on the issuing activity. If only some, but not all, of those activities are carried on by another person under arrangements made by A, persons should consider the arrangements as a whole to determine who is carrying on the issuing activity. Whether a third party carrying out functions for a stablecoin issuer requires authorisation for other activities would depend on exactly what it is doing (for example, a person providing services in relation to the backing assets may be carrying out regulated activity).

Question 5.6: If a stablecoin issuer sells its business book to an overseas firm, could the overseas firm need authorisation under article 9M of the Regulated Activities Order to continue issuance?

Yes, the purchaser of a UK-issued qualifying stablecoin business could require authorisation under article 9M of the Regulated Activities Order due to article 9M(4)(b). The effect of article 9M(4)(b) is that a purchaser who assumes an undertaking to redeem the qualifying stablecoin is considered to be carrying on the offering and backing asset limbs of issuing a qualifying stablecoin and to have created the stablecoin.