Key Insights
- The BOE and the FCA have revealed their roles in regulating the cryptocurrency and stablecoin sectors in the UK.
- The BOE will focus on “systemic stablecoins” that could impact financial stability, while the FCA will oversee the broader crypto industry.
- The regulatory measures come amid the entry of major tech firms into the stablecoin space.
The Bank of England (BOE) and the Financial Conduct Authority (FCA) have outlined their regulatory roles in the cryptocurrency and stablecoin sector in the UK. The BOE will focus on “systemic stablecoins” that could disrupt financial stability, while the FCA will oversee the broader crypto industry.
This regulatory development comes in response to the rise of major tech companies like Meta (formerly Facebook) and PayPal entering the stablecoin space and the recent collapse of Terraform Labs. Global regulations regarding stablecoins have been evolving in jurisdictions such as the European Union and Japan.
While the EU aims to limit widespread stablecoins, the BOE’s proposals would allow approved companies to issue payments-focused, fiat-backed stablecoins in the UK. Notably, no existing stablecoin qualifies as “systemic” under these proposals.
The UK, aspiring to be a global crypto hub, had previously brought stablecoins under its payments regulation in June. Legislation specific to fiat-backed stablecoins is expected in early 2024.
The BOE and FCA view these discussion papers as an initial phase in developing the regulatory framework. They plan to consult on final rules by mid-2024 and implement stablecoin regulations by 2025. The BOE’s focus is on British pound-pegged stablecoins, with consideration of limits on individual stablecoin holdings.
In terms of consumer protections, the FCA aims to ensure that stablecoins are backed by appropriate assets equal to their circulation value and are easily redeemable for fiat currency. Regulated stablecoin issuers may retain revenues derived from backing assets, creating a clear distinction between stablecoins and traditional deposits.
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