The Bank of England (BOE) and the Financial Conduct Authority
(FCA) have released a proposal to oversee the issuance and operation of
stablecoins in the United Kingdom. These plans followed the recent unveiling of
broader cryptocurrency regulations by the UK government.

Stablecoins, which could potentially disrupt
financial stability due to their wide circulation, will come under the regulatory
purview of the BOE, according to the official statement published by the HM
Treasury. Concurrently, the FCA will supervise the broader cryptocurrency
sector, aligning it with the UK’s ambitions to
become a global crypto hub.

The catalyst for these proposals includes the
intentions of major tech companies such as Meta (formerly Facebook) and PayPal
to issue stablecoins tailored for facilitating payments. Notably, the collapse
of Terraform Labs, a prominent stablecoin entity from the previous year,
spurred increased global attention toward the need for stablecoin regulations,
Coindesk reported.

The BOE’s proposal offers a distinct approach by
allowing companies to issue payments-focused, fiat-backed stablecoins in the
UK, provided they meet the necessary approval criteria. This development marks
the UK’s commitment to establish itself as a crypto-friendly jurisdiction.

Regulators are keen to gather feedback from
stakeholders before proceeding with the final rules. The BOE and FCA intend to
consult on these rules by mid-2024 and aim to implement the stablecoin
regulatory regimes by 2025.

The BOE’s primary focus lies on stablecoins pegged
to the British pound, as these are deemed most likely to be widely used for payments.
One notable consideration is the potential imposition of limits on individual
stablecoin holdings, reflecting the BOE’s intention to ensure stability in the
financial system.

FCA’s Stringent Approach to Stablecoin Issuers

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The FCA has emphasized that stablecoin issuers must
seek authorization to circulate fiat-backed stablecoins in or from the UK.
These stablecoins should be backed by adequate assets to match the value in
circulation, and issuers must facilitate easy redemption for fiat currencies,
regardless of technical or liquidity challenges.

Furthermore, the FCA has proposed that regulated
stablecoin issuers should be allowed to retain revenues generated from the
backing assets. However, the financial regulator has expressed reservations
about permitting these issuers to pay interest or income to consumers,
considering the possible unfairness in high or rising interest rate scenarios.

As part of this effort, the UK Treasury has
responded to a consultation on crypto regulation, planning to subject
stablecoins to existing rules for traditional payment service providers. Recent
events, including the collapse of FTX, have informed these proposals, the
Financial Times reported. These regulations will extend to transactions related
to purchasing goods and services in retail stores.

The Bank of England (BOE) and the Financial Conduct Authority
(FCA) have released a proposal to oversee the issuance and operation of
stablecoins in the United Kingdom. These plans followed the recent unveiling of
broader cryptocurrency regulations by the UK government.

Stablecoins, which could potentially disrupt
financial stability due to their wide circulation, will come under the regulatory
purview of the BOE, according to the official statement published by the HM
Treasury. Concurrently, the FCA will supervise the broader cryptocurrency
sector, aligning it with the UK’s ambitions to
become a global crypto hub.

The catalyst for these proposals includes the
intentions of major tech companies such as Meta (formerly Facebook) and PayPal
to issue stablecoins tailored for facilitating payments. Notably, the collapse
of Terraform Labs, a prominent stablecoin entity from the previous year,
spurred increased global attention toward the need for stablecoin regulations,
Coindesk reported.

The BOE’s proposal offers a distinct approach by
allowing companies to issue payments-focused, fiat-backed stablecoins in the
UK, provided they meet the necessary approval criteria. This development marks
the UK’s commitment to establish itself as a crypto-friendly jurisdiction.

Regulators are keen to gather feedback from
stakeholders before proceeding with the final rules. The BOE and FCA intend to
consult on these rules by mid-2024 and aim to implement the stablecoin
regulatory regimes by 2025.

The BOE’s primary focus lies on stablecoins pegged
to the British pound, as these are deemed most likely to be widely used for payments.
One notable consideration is the potential imposition of limits on individual
stablecoin holdings, reflecting the BOE’s intention to ensure stability in the
financial system.

FCA’s Stringent Approach to Stablecoin Issuers

The FCA has emphasized that stablecoin issuers must
seek authorization to circulate fiat-backed stablecoins in or from the UK.
These stablecoins should be backed by adequate assets to match the value in
circulation, and issuers must facilitate easy redemption for fiat currencies,
regardless of technical or liquidity challenges.

Furthermore, the FCA has proposed that regulated
stablecoin issuers should be allowed to retain revenues generated from the
backing assets. However, the financial regulator has expressed reservations
about permitting these issuers to pay interest or income to consumers,
considering the possible unfairness in high or rising interest rate scenarios.

As part of this effort, the UK Treasury has
responded to a consultation on crypto regulation, planning to subject
stablecoins to existing rules for traditional payment service providers. Recent
events, including the collapse of FTX, have informed these proposals, the
Financial Times reported. These regulations will extend to transactions related
to purchasing goods and services in retail stores.





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