UK Regulators Unveils Plans to Regulate Stablecoins, Cites Risks to Financial Stability
- U.K. financial regulators, including BoE and FCA, released discussion papers on regulating stablecoins.
- Stablecoin issuers are required to fully back digital assets with deposits at BoE to ensure stability.
- FCA to oversee the wider crypto sector, stablecoin issuers must seek authorization for circulation.
The U.K. financial regulators, including the Bank of England (BoE) and the Financial Conduct Authority (FCA), have released discussion papers outlining plans to regulate stablecoins. These proposals are part of a broader effort by the U.K. government to oversee the crypto sector.
The discussion papers were published alongside a letter from the Prudential Regulation Authority (PRA) to bank Chief Executive Officers on innovations in the use by banks of deposits, e-money, and stablecoins, and a roadmap paper. The PRA expects lenders in the country to mitigate risks “of contagion.”
The letter stated, “Contagion risks will be lower for stablecoins used in systemic payment systems regulated by the Bank, than for e-money or other regulated stablecoins captured by the FCA’s regime.”
In the discussion paper released on Monday, the BoE revealed a comprehensive regulatory framework for systemic payment systems utilizing stablecoins and related service providers. The proposed framework focuses on sterling-denominated stablecoins used in retail payments. By requiring stablecoin issuers to fully back their digital assets with deposits at the BoE, the regulatory body aims to uphold the stable value of these coins and instill confidence among users.
“Stablecoins present risks both in terms of their innovative use as a form of money or money-like instrument, and their use as a means of payment in systemic payment systems. Our proposed regime aims to address both these risks,” the paper said.
Meanwhile, the FCA will oversee the wider cryptocurrency sector and require stablecoin issuers to seek authorization for circulation. Regulated stablecoin issuers must back their coins with appropriate assets and can retain revenues from backing assets, creating a distinction between stablecoins and deposits.
At present, the regulators are seeking feedback on their proposals and will consult on final rules after receiving input from stakeholders.
Stablecoins are privately issued digital assets that offer advantages in terms of cost, convenience, and functionality. However, their growing use raised concerns about the safety and stability of the financial system.
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