Bank of England and FCA Appeal for Feedback on Stablecoin Regulation Proposals
In an effort to harmonize the benefits of stablecoins with financial stability and consumer protection, the Bank of England and the Financial Conduct Authority are seeking feedback on their proposed regulatory approach to stablecoins.
The Bank of England (BoE) and the United Kingdom’s Financial Conduct Authority (FCA) are soliciting public and industry feedback on their proposed strategy for stablecoin regulation. According to a statement from the BoE, the proposed regulations would apply to all future payment systems that use stablecoins at a systemic scale in the UK. It was clarified that the need for such regulation stems from the potential risk stablecoins could pose to financial stability if widely used for retail payments.
The regulatory proposals were outlined in two discussion papers, one issued by the BoE and the other by the FCA. The BoE’s document detailed its aim to regulate operators of systemic payment systems using stablecoins, stablecoin issuers, and wallet providers. The FCA’s paper explored the proposed regulation around issuing and holding stablecoins.
Bank of England Deputy Governor for Financial Stability, Sarah Breeden, said that the proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.
The papers also sought to assess the potential benefits that stablecoins could bring to UK consumers and retailers, particularly by facilitating faster and cheaper payments. Sheldon Mills, FCA Executive Director of Consumers and Competition, emphasized that stablecoins have the potential to make payments faster and cheaper for all, and the regulatory bodies want to create proportionate rules that benefit consumers and firms while meeting their objectives.
The UK’s Prudential Regulatory Authority (PRA) also weighed in on the matter, issuing a statement directed at deposit-takers and the risks associated with deploying multiple forms of digital money. The PRA’s statement came in the form of a letter titled “Innovations in the use by deposit-takers of deposits, e-money, and regulated stablecoins.”
On the same day, the FCA, BoE, and PRA published a cross-authority roadmap that explains how the UK’s current and proposed regulatory regimes for issuers of different forms of digital money or money-like instruments will interact.
Regulating stablecoins is the initial phase of the UK’s plans to introduce a comprehensive crypto asset regulatory regime. The final proposals for regulating crypto assets were released by the UK Treasury on Oct. 30, delegating powers to the FCA to oversee the issuance and custody of fiat-backed stablecoins in the UK.
The BoE and FCA are inviting feedback from the public and industry until Feb. 6, 2024.
In conclusion, while the FCA continues to caution against the risks associated with crypto assets, including stablecoins, the joint efforts by the BoE, FCA, and PRA to establish a comprehensive regulatory framework reflect a proactive approach towards embracing the potential benefits of digital assets, whilst minimizing the associated risks.
