Stablecoins are a potential danger to financial stability, thus the Bank of England aims to monitor those that are widely used.
Bank of England (BOE) and Financial Conduct Authority (FCA) proposals followed wider U.K. government measures for crypto sector oversight released last week.
The BOE has said that the discussion papers are “an exploratory phase in developing the new regime,” and that after receiving comments from stakeholders on these ideas, regulators would proceed to consult on its final regulations.
The FCA will be in charge of the whole cryptocurrency industry, but the central bank has warned it would regulate “systemic stablecoins” that have a large enough circulation to threaten financial stability.
Stablecoin regulation has been accelerated globally, with the European Union and Japan recently concluding regimes in response to proposals by large technology corporations like Facebook (now Meta) and PayPal to issue stablecoins.
In June, the U.K. successfully included stablecoins inside the purview of the country’s payments law, a key step toward the country’s goal of becoming a crypto powerhouse. Stablecoins backed by fiat currencies may anticipate legislative support early in 2024.
According to a news release, the BOE aims to prioritize pound-backed stablecoins since it expects them to be extensively utilized for making transactions.
Along with a letter to deposit-takers from the UK’s Prudential Regulations Authority (PRA), the BOE report was released on Monday.
In the letter, the PRA made clear that the safeguards afforded to conventional deposit takers are different from those afforded to users of stablecoins, and that the PRA expects lenders in the nation to limit risks “of contagion.”
There will be less of a chance of contagion with stablecoins used in Bank-controlled payment systems than with e-money or other stablecoins that are managed by the FCA, the letter said.
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