United Kingdom regulators are increasingly concerned about the impact of stablecoins and the broader crypto industry on the country’s financial system and monetary stability.

During Financial Policy Committee meetings held on April 4 and 8, regulators noted that while the current “interconnectedness of unbacked crypto asset markets with the real economy and financial sector is growing but remains relatively limited,” stablecoins and crypto markets have expanded significantly in the past year, drawing heightened regulatory attention.

The UK, its central bank and its local regulator, the Financial Conduct Authority, have been developing frameworks for stablecoins to ensure financial resilience. The committee claims to have determined the factors that make a stablecoin resilient:

“A key determinant of the resilience of stablecoins was the liquidity, credit and market risks of their backing assets, which were in place to ensure that redemptions can be met in a timely manner at par, even in periods of stress.“

The committee raised alarm over the “greater issuance of sterling offshore stablecoins with inappropriate backing assets.” This has implications for UK financial markets and “even with appropriate regulation, greater use of stablecoins denominated in foreign currencies could make some economies vulnerable to currency substitution,” the committee said.

Related: Builders beware — The UK’s 2026 crypto regime is coming

Currency substitution risks spark concern

Committee members are worried that if stablecoin use were to move beyond crypto settlements, it could result in “implications for retail and wholesale cross-border payments.” In retail flows, stablecoin use by households and small and medium-sized enterprises could, for cross-border payments, “result in currency substitution,” increasing counterparty risk.

The statement followed reports about growing stablecoin adoption not limited to crypto remittances in emerging markets, especially in Africa. A recent report from Chainalysis found that stablecoins now make up nearly half of all transaction volume in Sub-Saharan Africa.

Similarly, a late 2024 report suggested that a number of emerging economies across Africa have the potential to become digital asset hubs. Ben Caselin, chief marketing officer of Johannesburg-based crypto exchange VALR, told Cointelegraph at the time:

“South Africa is the entryway to the rest of Africa with a good rule of law and independent judiciary. It’s easy to open a company in South Africa.”

Still, reports of similar trends in developed economies with easily accessible financial infrastructure are scarce. Experts often point to the unavailability of banking services and unstable local fiat currencies as the reason why developing countries — from Africa in particular — are eager to adopt dollar-based stablecoins and crypto.

Related: 3 reasons why stablecoin growth thrives globally — Will US follow under Trump?

UK is not alone in worrying

The United Kingdom is in good company in worrying about the impact of stablecoins and the broader crypto industry on monetary stability. The European Securities and Markets Authority (ESMA) recently warned that crypto will increasingly threaten traditional financial markets’ stability as the industry grows and becomes more entwined with conventional finance players. ESMA’s executive director, Natasha Cazenave said:

“We cannot rule out that future sharp drops in crypto prices could have knock-on effects on our financial system.”

Local regulators are already acting on those concerns. In late March, the European Union’s insurance authority proposed a blanket rule that would mandate insurance firms to maintain capital equal to the value of their crypto holdings as part of a measure to mitigate risks for policyholders.

Magazine: Ridiculous ‘Chinese Mint’ crypto scam, Japan dives into stablecoins: Asia Express

Non-fungible token marketplace OpenSea has urged the US Securities and Exchange Commission to exclude NFT marketplaces from regulation under federal securities laws.

The SEC needs to “clearly state that NFT marketplaces like OpenSea do not qualify as exchanges under federal securities laws,” OpenSea general counsel Adele Faure and deputy general counsel Laura Brookover said in an April 9 letter to Commissioner Hester Peirce, who leads the agency’s Crypto Task Force.

Faure and Brookover argued that NFT marketplaces don’t meet the legal definition of an exchange under US securities laws as they don’t execute transactions, act as intermediaries or bring together multiple sellers for the same asset.

“The Commission’s past enforcement agenda has created uncertainty. We therefore urge the Commission to remove this uncertainty and protect the ability of US technology companies to lead in this space,” Faure and Brookover wrote.

“In preparing this guidance, the Crypto Task Force should specifically address the application of exchange regulations to marketplaces for non-fungible assets, similar to the recent staff statements on memecoins and stablecoins,” Faure and Brookover added. 

Under a notice published on April 4, the SEC said stablecoins that meet specific criteria are considered “non-securities” and are exempt from transaction reporting requirements.

Meanwhile, the SEC’s division of corporation finance said in a Feb. 27 staff statement that memecoins are not securities under the federal securities laws but are more akin to collectibles.

NFT marketplaces don’t fit broker definition, says OpenSea

Faure and Brookover argued the Crypto Task Force should also exempt NFT marketplaces like OpenSea from having to register as a broker, arguing they don’t give investment advice, execute transactions, or custody customer assets.

“We ask the SEC to clear the existing industry confusion on this issue by publishing informal guidance. In the longer term, we invite the Commission to exempt NFT marketplaces like OpenSea from proposed broker regulation,” they said.

Related: OpenSea pauses airdrop reward system after user backlash

Under the Trump administration, the SEC has slowly been walking back its hardline stance toward crypto forged under former Chair Gary Gensler.

The regulator has dismissed a number of enforcement actions it previously launched against crypto firms and has dropped probes into crypto companies over alleged securities law violations, including one into OpenSea.

Magazine: Trump-Biden bet led to obsession with ‘idiotic’ NFTs —Batsoupyum, NFT Collector