Stablecoins are supposed to be the straightforward part of crypto. Pegged to fiat, predictable in value, useful for payments and settlement. But from a regulatory perspective, they’re anything but simple. Stablecoins sit in a grey zone between two different licensing frameworks, and getting the wrong one — or not realising you need both — can derail your entire application strategy.
The Two-Regime Problem
In the UK, stablecoin activities could fall under the Payment Services Regulations 2017 and Electronic Money Regulations 2011 (the payments regime), the new FSMA cryptoasset authorisation regime, or potentially both. The answer depends on what exactly your firm does with stablecoins.
Issuing stablecoins that are backed by fiat currency and redeemable at par starts to look a lot like issuing electronic money. That points towards EMI authorisation under the payments regime.
Operating a fiat-to-stablecoin exchange could be classified as a payment service, a cryptoasset exchange activity, or both — depending on how the transaction is structured and what the FCA determines the stablecoin to be.
Using stablecoins for cross-border settlement between business clients may sit within the payment services framework if the stablecoin is simply the settlement rail, but could trigger crypto permissions if the firm is dealing in the stablecoin itself.
Holding stablecoins on behalf of clients is custody — which falls squarely under the new FSMA crypto regime, regardless of whether the underlying asset is a stablecoin or any other cryptoasset.
Why This Matters for Your Application
If you apply for PI or EMI authorisation for your stablecoin activities and the FCA determines that those activities actually fall under the FSMA crypto regime, your application hits a wall. You’ve applied under the wrong framework. Conversely, if you apply only under the crypto regime but your stablecoin activities constitute payment services or e-money issuance, you’ll need additional licensing.
The worst outcome is discovering this mid-application, when the FCA comes back and tells you that you need a different or additional authorisation. That sets you back months and could push you past the February 2027 gateway deadline.
How to Get the Positioning Right
Map every stablecoin touchpoint. Don’t just look at your core product. Trace every point where stablecoins enter and leave your platform, how they’re held, whether you issue them, and how they interact with fiat.
Get a definitive view before you apply. A regulatory perimeter analysis that specifically addresses your stablecoin activities is not optional — it’s the foundation of your application strategy. This is the single most important pre-application workstream for any firm dealing with stablecoins.
Use the FCA’s pre-application service. If there’s genuine ambiguity about which regime applies, test it with the regulator before committing to a formal application route.
We Can Help You Navigate This
Stablecoin regulatory positioning is one of our specialisms. LHI Consulting helps firms work out exactly where their stablecoin activities sit, which authorisations they need and how to present their business to the FCA in a way that avoids triggering unexpected dual-regime obligations.
Want to talk this through?
We offer a free 30-minute consultation to help you understand what the FCA will expect from your firm.
Email: rm@lhiconsult.com | Web: lhiconsult.com
