08 November, 2023
The Bank of England and the Financial Conduct Authority (FCA) have released proposals soliciting feedback on their intended regulatory framework for stablecoins, explicitly targeting any potential future payment systems using stablecoins on a systemic scale within the UK.
Stablecoins represent a novel form of digital asset designed to maintain a stable value and could be utilised for retail payments. The regulatory approach outlined by the FCA and the Bank aims to leverage the potential advantages of stablecoins, notably in facilitating faster and more cost-effective payments. Simultaneously, these proposals aim to ensure consumer protection, combat money laundering, and uphold financial stability.
The FCA’s Discussion Paper delves into the proposed regulation encompassing the issuance and custody of stablecoins that assert stability by holding assets denominated in a fiat currency.
Conversely, the Bank’s Discussion Paper details its regulatory stance towards operators of systemic payment systems employing stablecoins. These are payment systems that, if extensively employed for retail transactions in the UK, pose risks to the financial system’s stability. The Bank also seeks to regulate other entities, such as stablecoin issuers and wallet providers, whose involvement may pose financial stability risks to these payment systems.
Sheldon Mills from the FCA emphasises the potential of stablecoins to revolutionise payments, aiming to develop rules that benefit consumers and firms while aligning with regulatory objectives. Sarah Breeden, the Bank of England’s Deputy Governor for Financial Stability, underscores the importance of robust regulation to support innovation in digital retail payments.
The FCA and the Bank invite feedback from the public and industry stakeholders until February 6, 2024.
Furthermore, the Prudential Regulatory Authority (PRA) has issued a communication addressing deposit-takers, highlighting the risks stemming from the issuance of various forms of digital money while acknowledging the potential benefits of innovation in this domain. This communication outlines the PRA’s broader expectations from banks concerning their utilisation of digital money, emphasising areas such as operational resilience, anti-money laundering measures, counter-terrorist financing, liquidity, and funding risks.
Additionally, a cross-authority roadmap paper has been published, illustrating how the current and proposed regulatory frameworks of UK authorities for issuers of digital money will interact.
While discussing these advancements, the FCA remains steadfast in cautioning individuals about the risks associated with crypto assets, including stablecoins, emphasizing their largely unregulated nature and the absence of protections in case of unforeseen complications.
References:
https://www.bankofengland.co.uk/news/2023/november/fca-and-bank-of-england-publish-proposals-for-regulating-stablecoins
https://www.lexology.com/library/detail.aspx?g=194867b9-b766-4246-bc11-4e5d6c6fcbaf
https://www.fca.org.uk/publication/discussion/dp23-4.pdf
