The FCA’s latest consultation could redefine how stablecoins are used in payments. With new exemptions reducing compliance burdens, 2026 may mark a turning point for institutional cross-border transactions. But will retail adoption follow?
The UK’s regulatory landscape for stablecoins in payments has finally provided the industry much needed clarity. Previously, concerns mounted that stablecoins used solely for settlement purposes could fall within the scope of the Regulated Activities Order (RAO), potentially pulling payment firms into the FSMA regime and increasing compliance costs.
The FCA’s latest consultation paper (CP25/41) introduces a framework that could shape the future of stablecoins in payments. Crucially, it includes exemptions for firms using stablecoins for settlement rather than high-risk activities such as custody or trading, reducing unnecessary compliance burdens and enabling firms to focus on innovation.
These exemptions clarify where payment firms can interact with stablecoins without being captured by FSMA 2023 or the Designated Activities Regime (DAR).
Article 9R: Holding a qualifying cryptoasset temporarily to facilitate settlement is not considered safeguarding.
Payment firms often need to hold stablecoins briefly during transaction processing. Without this exemption payment firms would fall under full custody rules.
Article 9S: Acting as an agent or giving instructions does not make a firm responsible for safeguarding cryptoassets, unless they present themselves as a custodian.
This exemption ensures payment providers can use stablecoins to facilitate settlement, ensuring they are not inadvertently classified as safeguarding providers under Article 90(1)(a). This protects payment firms from being misclassified as custodians, reducing possible compliance and treasury costs while enabling fiat-to-stablecoin conversions as part of a payment flow.
Article 9Z4: Arranging deals does not include transactions where the arranger enters as principal or agent.
For stablecoin payment firms, this means they can facilitate settlements using stablecoins without being treated as brokers and avoids such firms being caught by the scope of the cryptoasset regime. This exemption aligns with MiFID principles by preventing dual regulation for firms settling transactions using stablecoins.
These exemptions signal the FCA’s intent to balance consumer protection with innovation. This pathway would enable stablecoins to thrive, especially in institutional and wholesale cross-border payment corridors where speed, cost-efficiency, and settlement certainty are critical.
Retail adoption, however, is likely to lag. The UK’s strong domestic payment rails (such as Faster Payments and Open Banking) limits consumer demand for stablecoin-based retail payments. Unlike emerging markets, the UK lacks drivers like currency volatility or financial inclusion gaps. While retail adoption could grow in the long term, 2026 appears unlikely to be the tipping point.
In contrast, retail adoption is accelerating in developing economies. Countries like Brazil and Argentina use stablecoins as a hedge against inflation and currency instability. Across Latin America, stablecoins also reduce reliance on the US dollar, offering consumers an effective alternative for everyday transactions.
The UK’s activity-based approach contrasts sharply with other jurisdictions:
EU – The Markets in Crypto-Assets Regulation (MiCA) imposes strict capital, governance, and reserve requirements. Even for firms using stablecoins solely for settlement. This raises operational costs for payment-focused businesses.
US – Regulation remains fragmented. Payment firms fall under state money transmitter laws, while federal proposals like the Stablecoin TRUST Act lean toward banking-style prudential standards. The lack of clear carve-outs for pure payment use cases creates uncertainty.
Despite being a ‘second mover’ in stablecoin regulation, the UK’s nuanced exemptions and activities-based approach is a more agile environment for cross-border stablecoin payments compared to MiCA’s comprehensive regime and the US’s fragmented approach.
In the UK, retail adoption may remain muted, but for institutional and wholesale cross-border flows, the FCA’s pragmatic exemptions could make 2026 the year stablecoins move from concept to critical wholesale infrastructure.
Navigating the FCA’s stablecoin framework isn’t just about understanding exemptions. It’s about applying them correctly to your business model and ensuring compliance without slowing innovation.
Our team can provide practical, tailored advice to keep you ahead of the curve. Get in touch at info@thistleinitiatives.co.uk or call 020 7436 0630 to speak with our team.
William has joined our Payment Services Consulting team as a Manager. He brings experience from Revolut’s Regulatory Affairs team and his previous role as Policy Advisor at UK Finance, where he worked on financial policy for digital assets and payments.
He has led industry working groups, engaged with regulators, and written on emerging trends in payments and innovation. William is passionate about supporting the UK fintech ecosystem and promoting a secure, competitive financial services sector.