In a significant move to ensure the stability of the financial system, the Bank of England has unveiled its regulatory framework for crypto stablecoins. The central bank’s approach aims to prioritize stability for stablecoins used in systemic payment systems, emphasizing lower contagion risks compared to stablecoins captured by the Financial Conduct Authority’s (FCA) regime.
Circle, Tether Will Now Need Authorization
UK financial regulators have unveiled their intentions to regulate stablecoins that have the potential to jeopardize the stability of the financial system. The details of these regulatory plans were disclosed in discussion papers released on Monday.
The regulatory framework is placed on stablecoins that are pegged to the value of the British pound. The Bank of England (BOE) clarified in a press statement accompanying the papers that these particular stablecoins are considered the “most likely” candidates for widespread usage in payment systems.
The BOE said, “The discussion paper represents an exploratory phase in developing the new regime. After receiving and considering feedback from the industry on these initial proposals, the Bank will consult on its final proposed regime.”
The UK government has outlined its regulatory approach, stating that it will entrust the oversight of “systemic stablecoins” and their issuers to the central bank. Meanwhile, the crypto market will fall under the purview of the Financial Conduct Authority (FCA). These plans were recently published by the government.
Furthermore, the government announced its intention to introduce legislation for fiat-backed stablecoins in the early part of the upcoming year. The Bank of England’s paper was released in conjunction with another discussion paper from the FCA and a letter from the country’s Prudential Regulation Authority (PRA) addressed to deposit-takers.
In the letter, the PRA expressed its expectation that lenders in the country take steps to mitigate the risks associated with “contagion.” It emphasized that the protections available to traditional deposit takers differ from those available to users of stablecoins.
The FCA provided clarification in its paper that issuers of stablecoins pegged to fiat currencies must obtain authorization to distribute such stablecoins within or from the United Kingdom.
UK Makes Quick Progress In Regulations
Last week, the UK government officially affirmed its intentions to regulate the cryptocurrency sector. It disclosed in a consultation document that it intends to enact formal legislation for cryptocurrency-related activities by the year 2024.
Additionally, the UK is putting forward more rigorous frameworks for combatting market abuse and enhancing transparency in crypto asset issuance and disclosures.
The government’s objective is to present cryptocurrency-related legislation to Parliament by 2024, as outlined in the document. At this point, the specific nature of UK cryptocurrency regulations and their approach to overseeing DeFi activities remains unclear.
The EU has established a comprehensive structure for digital assets through its MiCA (Markets in Crypto-Assets) regulation, which includes a licensing procedure for cryptocurrency companies.
In this regard, the UK is ahead of the curve compared to other leading tech nations. While several bills are making their way through the U.S. Congress, the United States lags behind other countries in the development of formal federal legislation for the cryptocurrency industry.
Members of the House of Commons’ Treasury Committee have previously expressed concerns that regulating cryptocurrencies such as Bitcoin (BTC) and ether (ETH) in a manner similar to traditional financial services could create a misleading sense of security among users. Additionally, the government has previously dismissed suggestions to classify cryptocurrencies as a form of gambling.
