In our previous article, we explored the core concepts of stablecoins and fiat on/off-ramps, along with the main integration models PayTechs can adopt. Now, we turn to the regulatory and compliance landscape that governs these innovations.
As crypto adoption grows, regulators are rapidly evolving frameworks to ensure that stablecoins and related financial services meet the same standards as traditional payment systems. For non-bank financial institutions (FIs), this creates both opportunities and obligations. This article unpacks global regulatory developments, outlines practical compliance strategies, and highlights the risks PayTechs must manage when stepping into the crypto space – from reserve backing to smart contract security. Additionally, we take a forward look at the trends reshaping the future of digital value transfer, including CBDCs, AI integration, and programmable money.
Regulatory Frameworks for Stablecoins and Crypto On/Off-Ramps
Integrating crypto assets raises complex regulatory questions, especially for institutions that are already licensed and supervised. Global regulators and standard-setting bodies have been actively developing frameworks to govern stablecoins and cryptoasset activities, aiming to mitigate risks without stifling innovation. Non-bank FIs looking to engage in this space must navigate overlapping regimes: traditional e-money/payment regulations and emerging crypto-specific rules. Below, we outline key regulatory developments and requirements across jurisdictions and agencies.
International Landscape
At an international level, global standards (BIS, FBS, IOSCO) and authorities stress that stablecoin arrangements performing equivalent functions to traditional payments should face equivalent regulation. In October 2023, the Financial Stability Board (FSB) finalised high-level recommendations for regulating “global stablecoin arrangements.” These include ensuring issuers and intermediaries are subject to comprehensive supervision, have robust risk management (especially for reserve assets), provide redemption rights at par for coin holders, and maintain interoperability with existing monetary systems. A consistent theme is that stablecoins used for payments should operate inside the regulatory perimeter, not as unregulated “shadow banking.” The Bank for International Settlements (BIS) has similarly argued that if stablecoins become widely used, they must observe standards akin to financial market infrastructures, given their potential systemic importance. IOSCO (the International Organisation of Securities Commissions) has applied its Principles for Financial Market Infrastructures to stablecoin arrangements, signaling that stablecoin transfer systems should meet the same resilience and oversight standards as payment systems or clearinghouses.
For non-bank payment firms, this means that entering the stablecoin business could invite regulation nearly as stringent as that faced by banks or large clearing institutions, especially if the stablecoin sector expands. However, these global standards also aim to level the playing field – preventing regulatory arbitrage and ensuring responsible innovation can occur with clear rules.
The European Union and MiCA
The EU has been at the forefront of crypto regulation with its comprehensive Markets in Crypto-Assets (MiCA) regulation, explicitly covers stablecoins under two categories: Asset-Referenced Tokens (ARTs) (stablecoins referencing multiple assets or non-fiat values) and E-Money Tokens (EMTs) (stablecoins referencing a single fiat currency). Critically, MiCA mandates that issuers of EMTs must be authorised as a credit institution or an electronic money institution in the EU. In other words, a non-bank financial institution cannot issue a fiat-pegged stablecoin to the public in Europe unless it holds an EMI license (or a bank license). This effectively brings stablecoin issuance under the existing e-money supervisory regime, with the European Banking Authority (EBA) and national regulators overseeing compliance. Issuers must publish a detailed crypto-asset white paper and meet prudential requirements: maintaining adequate reserves in low-risk assets denominated in the same fiat currency, liquidity management, and an obligation to redeem tokens at par value at any time. For example, if an EU PayTech issues a Euro stablecoin, every token must be 100% backed by funds invested in Euro-denominated safe assets; holders must have a direct claim to redeem 1 token for €1, within 5 business days of request.
PayTechs in Europe therefore have a clear licensing pathway to issue stablecoins – it’s essentially an extension of their existing license, but they will need to comply with MiCA’s extra rules (such as notifying a white paper to regulators, quarterly reporting on reserves, etc.). Even for PSPs that are not issuers, MiCA will regulate crypto-asset service providers (CASPs), which include firms providing exchange between crypto and fiat, custodial wallet services, or crypto transfer services. A PayTech that wants to enable crypto trading or custodial wallets for customers will likely need to obtain a MiCA authorisation as a CASP (in addition to their EMI license) or partner with an entity that has one. In short, the EU framework seeks to integrate stablecoins into the mainstream regulatory structure: stablecoins that function like money must be issued and managed by regulated money institutions. This represents an opportunity for licensed fintechs (they have the regulatory stamp to proceed) but also raises the compliance bar (no “move fast and break things” in this domain).
Is There One Universal Way to Adhere to Regulations?
Entering the crypto space for PayTechs could mean multiple regulatory touchpoints. They might need to extend their existing license or get an additional one. Thus, regulatory coordination is key: non-bank FIs must engage with regulators early, possibly seek variations to their permissions, and ensure they meet all applicable rules across banking, securities, payments, and even tech risk domains. The regulators will examine not just prudential aspects, but also consumer protection and market integrity – for instance, ensuring that customers understand the risks of crypto, addressing complaints, and having contingency plans if a stablecoin fails. The collapse of some unbacked stablecoins (like TerraUSD in 2022) has made regulators very cautious; any stablecoin offering by a licensed firm will likely undergo stress tests, reserve audits, and strict oversight to prevent a loss of peg or loss of confidence scenario.
The regulatory environment is rapidly converging on the principle that stablecoins facilitating fiat value transfer must be regulated akin to financial operators. For non-bank financial institutions, this is both a validation (what was once a grey area is becoming an accepted part of finance) and a challenge (compliance costs and oversight will increase). However, regulated entities have a competitive edge over unregulated crypto startups: they can offer stablecoin services within a trusted framework, assuaging customer and regulator concerns. By proactively adhering to frameworks like MiCA, MAS’s rules, or the PWG recommendations, PayTechs can position themselves as responsible innovators, leveraging the benefits of crypto tech while safeguarding stability and trust.
Risk & Compliance Considerations
Any integration of crypto capabilities by PayTechs must be accompanied by rigorous risk management and compliance controls. While stablecoins and crypto rails offer speed and efficiency, they also introduce new types of risks that non-bank FIs need to manage to protect customers and meet regulatory obligations. This section outlines the major risk and compliance areas and how institutions can address them.
Financial Crime Compliance (AML/CTF)
Crypto transactions carry risks of money laundering, terrorist financing, and sanctions evasion due to their pseudonymous and cross-border nature. For a regulated PayTech enabling crypto on/off ramps or stablecoin transfers, AML and CTF compliance is paramount. This means applying customer due diligence (KYC) for users transacting in crypto, transaction monitoring, and reporting suspicious activity just as they do for fiat transactions. However, crypto adds an extra layer: screening blockchain addresses and transactions.
Many fintechs invest in blockchain analytics tools that can flag if an incoming stablecoin payment came from a wallet associated with illicit activity or if a destination address is on an OFAC sanctions list. This level of scrutiny provides a level of security beyond what traditional banks with no blockchain visibility can achieve. PayTechs should implement a Travel Rule solution for crypto as well – FATF’s Travel Rule requires VASPs (virtual asset service providers) to share sender and receiver information for transactions above certain thresholds. By integrating compliance tools and working only with counterparties that are compliant, non-bank FIs can mitigate financial crime risks. They must also register as a Money Service Business or equivalent if legally required.
Operational Risks and Security
If the institution is holding crypto assets on behalf of customers (custodial wallets) or its own treasury, it assumes new operational risks. Unlike fiat balances in a bank account, crypto assets are bearer instruments – control is via private cryptographic keys. Safeguarding these keys is critical. PayTechs typically use either qualified custodians or advanced custody technology (hardware security modules, multi-signature wallets, MPC) to secure funds. The risk of hacking or loss of keys must be addressed with bank-grade (or even better) security. Any smart contract used (for issuing a token or otherwise) should be audited for vulnerabilities.
There have been instances of cross-chain bridge hacks and smart contract exploits resulting in loss of stablecoins, so if a PayTech’s product relies on such technology, it needs contingency plans (insurance, bug bounties, the ability to pause or upgrade contracts under emergency, etc.). Operational resilience is also scrutinised by regulators – the firm should ensure it can sustain services if a blockchain network it relies on is congested or halted, and have alternative pathways (e.g., ability to route through a different network or use off-chain settlement as backup). If using third-party providers for custody or blockchain connectivity, due diligence and vendor risk management are vital: the failure of a crypto service partner could affect PayTech’s service.
Reserve Management and Stabilisation (for Issuers)
If the institution issues a stablecoin or holds customer funds to back stablecoins, it must manage the reserve assets with utmost care. Regulations like MAS’s or MiCA typically require reserves to be in low-risk, liquid assets (cash, central bank money, short-term sovereign debt). The operational risk is ensuring 1:1 backing at all times, managing liquidity so that redemptions can be met on demand, and segregating those assets from the issuer’s own funds (to protect customers in case of issuer insolvency). Regular audits and public disclosures build trust – for instance, major stablecoin issuers publish monthly attestation reports by accounting firms showing the breakdown of reserves. A PayTech might need to arrange similar independent audits.
Market Risks and Financial Modeling
Interest rate risk is another factor: if interest rates rise, the market value of bonds held as reserves could fall, potentially below par. A conservative approach (holding short maturities to avoid interest rate risk, or holding actual bank deposits) mitigates this. Some regulators lean toward a narrow banking approach – stablecoin reserves held entirely as central bank reserves or in cash – to virtually eliminate run risk, though this may limit the issuer’s ability to earn yield on reserves. The institution must also plan for stress scenarios: e.g., if users en masse convert a stablecoin to fiat (a run), do they have liquidity lines or sufficient on-hand cash to handle it without fire-selling assets? Under MiCA, significant stablecoin issuers must even have recovery and wind-down plans and may face stress-testing requirements.
Customer Protection and Education Obligations
Crypto transactions are irreversible and can be sent to any address globally. This raises fraud risks (scams tricking users into sending stablecoins, for instance). A PayTech offering stablecoin services should implement customer protections: confirmation prompts, education about not sending funds to unknown addresses, possibly an optional whitelist of addresses, and anomaly detection to spot if a user account was compromised and is suddenly withdrawing large crypto amounts. From a consumer protection standpoint, clarity is key – users should understand that their stablecoin holdings are not bank deposits and, unless explicitly stated, are likely not covered by deposit insurance or government guarantees.
Many regulators insist on proper disclosures of these facts. If a firm offers yield or other crypto-related products, the terms and risks must be communicated (we recall issues where some fintechs offered stablecoin yield products that turned out riskier than advertised, leading to regulatory actions). For stablecoins that the firm issues, redemption mechanisms must be reliable – if customers are promised 1-for-1 redemption, the process (likely via the app or a portal) should be smooth, with fees transparent. Operational risk includes handling customer support for a realm that operates 24/7 globally; fintechs often invest in round-the-clock support or robust self-service tools when they foray into crypto, because users may transact at all hours.
Non-bank FIs treading into crypto need to ensure they have the correct regulatory permissions. Operating outside of one’s license scope can lead to enforcement actions. For example, if an EMI in Europe started offering crypto exchange services without a MiFID or future MiCA authorisation, it could be penalised for unauthorised investment services or crypto services. Similarly, in the U.S., offering a stablecoin that pays interest might inadvertently make it a security, implicating SEC regulation. Institutions should conduct thorough legal analysis to avoid triggering securities, commodities, or other regulatory classifications inadvertently.
Legal Risks and Links to TradFi
One area of legal risk is tokenised deposits vs. stablecoins: if a bank partners with a fintech to tokenise bank deposits (as some projects do), those tokens might not legally be “stablecoins” but rather electronic records of bank liabilities. The EBA recently distinguished tokenised deposits (bank deposits represented on DLT) from e-money tokens, noting that stablecoins are generally bearer instruments transferable to anyone, whereas a tokenised deposit remains a direct claim on a specific bank and is tied to the depositor’s identity. This distinction matters for compliance: tokenised deposits would fall under banking regulation, while stablecoins under e-money/crypto rules. PayTech should be careful not to blur the lines. Many fintechs seek outside counsel and even engage with regulators through sandboxes or innovation offices to mitigate legal risks when launching novel products.
Operational Resilience and Business Continuity
In respect of the operational resilience and incident response, incorporating crypto means preparing for new kinds of incidents – e.g., forks or changes in blockchain protocol, extreme network fee spikes (which could render micro-transactions uneconomical for a period), or cybersecurity incidents specific to crypto (like a breach of a hot wallet). Regulators will expect that the institution’s operational risk framework and business continuity planning encompass these scenarios. For example, if using Ethereum and gas fees skyrocket, does the PayTech have a policy (like queue transactions or use layer-2 networks as alternatives)? If a major exploit occurs on a smart contract the firm uses, how quickly can they pause operations or inform customers? In addition, disaster recovery for digital assets is key – ensuring backups for keys (in a secure manner), and perhaps maintaining redundancy (some stablecoin issuers deploy their tokens on multiple blockchain networks, so if one network has issues, users can migrate to another – though this adds complexity).
The Answer is Simple – Bank Grade Compliance Practices
In essence, compliance and risk management for crypto should be as robust as for traditional money services, if not more so. Regulators have indicated that “same activity, same risk, same regulation” is the guiding principle. Non-bank FIs will need to extend their existing compliance programs to cover the crypto realm. This might involve training compliance staff in blockchain analytics, updating risk assessments to include cryptoasset risks, and possibly hiring new expertise (e.g., a head of digital assets compliance). The investment in strong compliance is not just about avoiding penalties; it can be a competitive advantage. Firms that can demonstrate to clients and regulators that their crypto services are safe, trustworthy, and in line with all laws will gain consumer confidence. For example, a PSP could market that it only supports fully regulated stablecoins that meet high standards, thus shielding customers from the riskier coins in the wild.
Finally, a note on reputational risk, given the volatility in the crypto industry, PayTechs must be prepared to manage reputational fallout if something goes wrong externally (like a stablecoin collapse or a major fraud in the market). Clear communication and a conservative approach to which crypto products to offer can protect the firm’s brand. Many choose to start with only the most established, regulated stablecoins (e.g., USDC or EUR stablecoins under EU regulation) rather than a plethora of tokens. Over time, as regulation matures and the firm’s own capabilities strengthen, they can expand services.
Future Outlook
Looking ahead, the landscape of fiat-digital value transfer is poised to evolve rapidly. Non-bank FIs need to stay abreast of the emerging technologies and regulatory policy developments that will shape the opportunities and challenges in this space. Below, we will delve into several key trends and future developments to consider.
The rise of stablecoins has accelerated central banks’ exploration of their own digital currencies. Central Bank Digital Currencies (CBDCs) are fiat currency issued in digital form by central banks, potentially offering the safety of sovereign money with the efficiency of crypto technology. Projects like the European Central Bank’s digital euro and various pilots by central banks (China’s digital yuan, eNaira in Nigeria, Project Ubin in Singapore, etc.) suggest that CBDCs may soon coexist with private stablecoins. For PayTechs, CBDCs represent both competition and opportunity. If a retail CBDC is widely adopted, it could reduce demand for private stablecoins for domestic payments. However, non-bank payment providers are expected to be key intermediaries for CBDC distribution (providing wallets, customer interface, and innovative use cases). PayTech might integrate a CBDC similar to a new currency in their platform.
In cross-border contexts, multiple CBDCs might be exchanged on interoperable platforms – here, PSPs could play a role in the conversion and FX services between different CBDCs, much like they do with fiat currencies today. Some central banks are even considering wholesale CBDCs for interbank settlement, which might indirectly speed up retail transactions. Non-bank institutions should monitor CBDC designs (token-based vs account-based) and interoperability standards. The holy grail of cross-border payments – cheap, instant, universal transfers – could be reached by a network of CBDCs or well-regulated stablecoins, or a combination. Strategic planning should account for a scenario where CBDCs become part of the core payment infrastructure by 2030, possibly reducing reliance on private stablecoins for certain uses while amplifying digital currency usage overall.
Programmable Money
Whether via stablecoins or CBDCs, the idea of programmable payments is gaining traction. This means money that can be coded to move under certain conditions automatically (using smart contracts). Stablecoins already enable this in DeFi – for example, paying yield or triggering payments based on IoT data. In mainstream finance, programmable money could revolutionise business processes: imagine supply chain payments that auto-release when goods are delivered (payment versus delivery smart contracts), or escrow arrangements that are enforced by code rather than intermediaries. The BIS noted that tokenised money could allow “automated delivery-vs-payment” and other conditional transactions that current systems can’t easily do. Non-bank FIs can leverage this by offering programmable payment services to enterprise clients – essentially “fintech meets fintech”: combining open banking APIs with smart contracts.
For example, PayTech could provide a service where a corporate treasury uses stablecoins to automate complex payment logic (releasing payroll in real-time as work is completed or splitting and routing funds based on predefined allocations). Payment versus payment (PvP) settlement using two different stablecoins (or a stablecoin and CBDC) could greatly reduce FX settlement risk. Regulators are supportive of innovation here but cautious to ensure legal clarity (a contract enforced by code still needs a legal framework for disputes, etc.). Over time, legal systems may recognise certain smart contracts for payments. PayTechs who build capabilities and partnerships in the blockchain smart contract space will be well-placed to launch new financial products when laws allow. We might see “smart e-money” products from today’s PayTechs that differentiate them from banks by offering more flexible, customisable money movements (similar to how fintechs today offer flexible escrow or conditional payments in online marketplaces).
Mix and Match: AI and Stablecoins
The convergence of AI with stablecoins is an emerging frontier. AI can enhance how stablecoin networks operate and how institutions manage crypto. For instance, AI algorithms could optimise treasury operations: deciding when to convert fiat to stablecoin or vice versa for best rates, or detecting patterns to prevent fraud. AI-driven chatbots and advisory tools can improve the customer experience in using crypto features. On a larger scale, the World Economic Forum has observed that the fusion of AI and stablecoins can create smarter financial systems by automating processes in real-time. One concept is AI-managed “smart contracts” that dynamically adjust according to data – e.g., micro-insurance policies that pay out stablecoins instantly if an AI or IoT network confirms an event (like flight delay insurance). Another is AI handling credit risk in DeFi lending platforms using stablecoins, potentially enabling credit products by non-banks using on-chain collateral with AI risk assessment. PayTechs might employ AI to analyse blockchain transaction patterns, enhancing their AML controls (which partially addresses the compliance burden we already discussed). By 2025 and beyond, as generative AI and machine learning permeate finance, we see self-driving money – funds that autonomously find the best yield or execute trades under AI management, largely using stablecoins as the vehicle. Decision-makers should keep an eye on developments like AI-driven trading algorithms in crypto, or AI platforms that interface with fintech APIs, as they could spawn new product offerings (e.g., AI-managed stablecoin investment funds offered to retail by fintechs, with full transparency on-chain).
Cross-protocol Bridges and Interoperability
Another challenge today is that stablecoins and CBDCs might exist on different networks and not easily interoperate. Efforts like the Interledger Protocol, Chain bridges, and industry consortia (e.g., Centre consortium behind USDC, or cooperation between stablecoin issuers and banks) aim to allow seamless transfer of value across networks. A future scenario is that a user can send money without worrying whether it’s via stablecoin, CBDC, or traditional fiat account – the backend will convert and route automatically (akin to how email is interoperable across providers). For PayTechs, interoperability is key to avoid being stuck supporting a tech that falls out of favour. Adopting standards early – for instance, if ISO 20022 (the new payments messaging standard) gets extended to carry stablecoin transaction data or if new API standards for open blockchain payments emerge – will be important. We already see big tech and finance collaborations, and non-bank FIs might participate in sandbox trials for such interoperability, ensuring they can plug in when these networks go live. The goal for the industry is that a user could, say, send $100 from a fintech app, and whether it arrives as a stablecoin or a CBDC in the recipient’s app in another country is abstracted – what matters is compliance and conversion are handled.
Regulatory Developments are Far From Over
Regulations will continue to adapt. MiCA is just the start in Europe – we can expect detailed technical standards from EBA (some already drafted) on how reserves must be managed, how often reports are filed, even how the stablecoin white paper disclosures should look. Globally, if stablecoins become systemically important, they might be regulated more like banks (e.g., requiring central bank access or deposit insurance for issuers). Legislation is being proposed in various jurisdictions to clarify the legal status of smart contracts, the rights of token holders, and insolvency treatment of digital assets. Decision-makers should anticipate stricter rules on operational resilience (possibly regulators requiring stablecoin issuers to have backup validators or multi-cloud deployments for their blockchain nodes) and on disclosures (perhaps real-time disclosure of reserve holdings).
The UK, meanwhile, is positioning itself as a competitive but credible jurisdiction through the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025. This draft legislation, published by HM Treasury, marks a pivotal step in transitioning cryptoassets into the traditional financial regulatory perimeter. The proposed Order not only brings fiat-backed stablecoins within scope for issuance and custody under existing financial services law, but also paves the way for regulating a broader set of activities through the designation of cryptoasset trading venues and intermediation services as regulated activities under the RAO.
The industry might converge on third-party certifications or ratings for stablecoins (similar to credit ratings), which could influence which coins a regulated PayTech is willing to use. Additionally, the tax and accounting treatment is evolving – if a PayTech holds stablecoins, how is that on the balance sheet? Some accounting boards are looking into treating certain stablecoins as cash equivalents. Keeping abreast of these developments will help in strategic planning – for example, if stablecoins get cash-equivalent status, treasurers might be more willing to hold them, which could be a selling point for a PayTech’s product.
Baseella: Powering Scalable Stablecoin Integration
Baseella’s modern core banking platform is designed with modularity and interoperability at its core, making it an ideal foundation for PayTechs and EMIs integrating stablecoins and fiat on/off-ramp services within a compliant framework. With open APIs, multi-currency ledger support, and cloud-native infrastructure, Baseella enables institutions to handle stablecoins like any other currency by facilitating seamless transactions, wallet integrations, reconciliation, and financial reporting.
In addition to supporting seamless stablecoin integration and fiat on/off-ramps, Baseella enables PayTechs to maintain compliance and operational resilience from day one. Its modular architecture allows institutions to plug in AML tools, blockchain analytics, and liquidity providers with minimal development effort. With real-time ledgering, flexible treasury management, and built-in audit trails, Baseella helps EMIs and PSPs stay ahead of both innovation and regulation — turning complex crypto infrastructure into a manageable, scalable asset.
Concluding Thoughts on Stablecoins and On/Off Ramps
Fiat on/off-ramps and stablecoins mark a transformative intersection between legacy finance and digital innovation. For PayTechs and other non-bank financial institutions, integrating these capabilities opens the door to faster payments, expanded global access, and participation in the evolving crypto market.
As outlined in this article, stablecoins provide a digitally native form of fiat that enables 24/7, near-instant value transfer. On/off-ramps, meanwhile, act as essential connectors between bank accounts and blockchain networks – making seamless entry and exit from the crypto realm possible.
Technical integration is increasingly achievable thanks to cloud-native core banking systems and API-driven architectures. Whether building direct blockchain connections or partnering with licensed crypto providers, many regulated firms have already proven that scalable, compliant crypto solutions are within reach.
In short, stablecoins and fiat on/off-ramps are no longer experimental—they’re strategic tools. Non-bank FIs that embrace them thoughtfully and compliantly will help shape the future of finance: one that is faster, more inclusive, and deeply programmable.