UK Financial Authorities Announce Plans to Regulate Stablecoin Activities

by Nik Asti

Published: November 06, 2023 at 6:14 am Updated: November 06, 2023 at 6:14 am

by Victor Dey

Edited and fact-checked:
November 06, 2023 at 6:14 am

In Brief

The Bank of England is set to supervise widely-used crypto stablecoins that could threaten financial stability.

As the United Kingdom aims to establish itself as a global hub for digital currencies, the Bank of England and the Financial Conduct Authority (FCA) today unveiled their strategies to bring stablecoins under a regulatory framework.

The move comes on the heels of the UK government’s broader ambitions to supervise the burgeoning crypto sector and reflects an ongoing global trend towards tightening oversight of digital assets.

The Bank of England intends to regulate widely circulated stablecoins that could potentially shake the country’s financial stability. This approach targets the systemic significance of these digital assets, aiming to ensure their integration into the UK’s financial system without disrupting the established monetary framework.

FCA’s Regulatory Blueprint for Stablecoins

Parallel to the central bank’s focus, the FCA is also preparing to cast a wider net over the crypto sector. The authority mandates that stablecoin issuers must secure official authorization to distribute fiat-backed stablecoins within the UK.

The requirement for regulatory compliance aims to guarantee that stablecoins have the support of adequate and liquid assets, thus ensuring redemption capabilities remain intact, even during technical or liquidity crises.

These regulatory overtures by UK financial watchdogs are part of the country’s strategic efforts to cultivate a fertile environment for cryptocurrency innovation while balancing the imperative of consumer protection. The inclusion of stablecoins under the UK’s payment regulations since June stands as a testament to the nation’s commitment to integrating crypto into its financial services sector.

Forthcoming Legislation and Consumer Protection

In anticipation of forthcoming legislation, particularly for fiat-backed stablecoins, the BOE is emphasizing the necessity for these to be pegged to the British pound to potentially become mainstream payment solutions. Both the Bank of England and the FCA are advocating for robust measures to mitigate contagion risks, drawing clear lines of demarcation between traditional financial mechanisms and the burgeoning world of stablecoins.

The FCA’s discussion paper also touches upon the delicate subject of allowing stablecoin issuers to retain earnings from the interest and returns on the backing assets. While this could draw a clear line between deposits and stablecoins, it raises concerns about fairness to consumers, especially in an environment where interest rates may surge.

Global Impetus and the UK’s Position

The concerted efforts to regulate stablecoins in the UK align with global regulatory actions, particularly in the wake of high-profile stablecoin debacles and Big Tech’s entrance into the crypto arena. With the European Union and Japan setting precedents with their finalized regimes, the UK’s regulatory endeavor is part of a broader international narrative that seeks to balance innovation with investor safety and market integrity.

As the dialogue progresses, the Bank of England and the FCA await feedback on these initial proposals to refine their regulatory frameworks, signalling the UK’s readiness to adapt to the fast-evolving digital currency landscape.

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Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master’s degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

Nik Asti