Bank of England Takes Charge: U.K. Sets Groundbreaking Rules for Stablecoins!

"Bank of England and FCA Empowered to Regulate Stablecoins as Potential Payment System Disruptors"

New Regulations Proposed for Stablecoins in the UK

The Bank of England (BoE) and the Financial Conduct Authority (FCA) are set to introduce enhanced powers to regulate stablecoins, privately-issued digital assets that are designed to maintain a steady value against fiat currency. These powers will enable the regulation of “systemic payment systems” involving stablecoins and associated service providers dealing with digital settlement assets. The aim of these regulations is to ensure that stablecoins can be used safely and effectively in daily transactions by UK citizens.

Under the proposed regulations, the principle of “same risk, same regulatory outcome” will be applied, suggesting that the risks associated with systemic payment systems using stablecoins are comparable to those of conventional payment systems. It is important to note that unbacked crypto-assets are considered unsuitable for extensive retail usage in the UK.

The BoE and the FCA, represented by figures such as Sarah Breeden and Sheldon Mills, are actively advocating for the integration of stablecoins into the UK payments system. This move is part of a broader post-Brexit digital assets strategy aimed at solidifying the UK’s position as a leading hub for digital assets. The two institutions plan to collaborate on the regulation of pound-backed stablecoins, with clearly defined roles for each.

Stablecoins, which are pegged to hard currencies, are being considered as a viable option for retail transactions, going beyond just cryptocurrency payments. The proposals include stringent regulation and oversight, with the BoE supervising entities behind stablecoins. To ensure stability, these tokens should be fully backed by central bank deposits, and issuers must have robust plans in place for managing redemptions.

The FCA has also announced plans for strict regulation of stablecoins, with a focus on high authorization standards. The authority is seeking industry feedback and has issued warnings about the penalties for non-compliance.

The proposals also take into account the role of “payment arrangers” in assessing the suitability of foreign stablecoins for use in the UK. Stablecoins offer potential benefits such as faster and cheaper payments, but they also face challenges, including the risk of failing to maintain their value peg to hard currencies. Currently, no stablecoin meets the proposed criteria set by the BoE and the FCA. However, this could change with the rapid growth of companies or partnerships between stablecoins and established firms with large customer bases for payments.

In conclusion, the BoE and the FCA are proposing new regulations to ensure the safe and effective use of stablecoins in the UK. These regulations aim to integrate stablecoins into the country’s payments system and establish stringent oversight and supervision. By doing so, the UK hopes to strengthen its position as a leading digital assets hub in the post-Brexit era.

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Martin Reid

Martin Reid

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