The UK’s central bank, the Bank of England (BOE), has announced its plan to regulate the stablecoin market.
The published paper says that the Bank of England (BOE) and the Financial Conduct Authority (FCA) will follow the rules that the UK government put out last week to supervise the digital asset business.
The new plan says that rules for stablecoins backed by fiat currency will start in early 2024. The BOE will be in charge of systemic stablecoins, while the FCA will be in charge of the crypto market.
You may remember that earlier this year, UK Prime Minister Rishi Sunak said he wanted the country to become a crypto hub. Adding clear rules for digital assets and crypto firms aligns with what the UK wants to do.
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What this implies for British stablecoins
These ideas come after the UK government released bigger plans last week to monitor the crypto sector.
According to the paper, the Financial Conduct Authority (FCA) will be in charge of the crypto sector as a whole, while the Bank of England (BOE) will be in charge of “systemic stablecoins” that are used by a lot of people and could affect the security of the financial system.
A statement from the BOE says that their plans are mainly focused on stablecoins tied to the value of the British pound. The central bank thinks many people will use these to pay for things. Not only that, but the central bank is also thinking about limiting how many stablecoins each person can hold.
As long as they get permission, sources say the BOE’s plans would also let companies issue payments-focused, fiat-backed stablecoins in the UK. As long as they meet the requirements, big tech companies like Meta and PayPal can make stablecoins for payments.
The FCA stated issuers must obtain permission to circulate fiat-backed stablecoins in the UK. It wants “appropriate” assets to support stablecoins equivalent to their circulation value. Issuers must also ensure that crypto may be easily redeemed for fiat currencies despite technical or liquidity difficulties.
The watchdog also said that authorised stablecoin issuers should be able to keep the money they make from “interest and return from the backing assets.” This will help make it “clear that stablecoins are not deposits.”
It says in the paper that the FCA does not want regulated stablecoin providers to give customers income or interest:
This may be considered unfair to consumers if interest rates stay high or go up a lot (since the assets that back the controlled stablecoin are supposed to be kept safe as client assets).
What will happen next?
The Bank of England says that the discussion paper that came out on the following day is “an exploratory phase in developing the new regime.” Once regulators hear what people say about these ideas, they will discuss the final rules.
An additional document produced with the discussion papers states that the FCA and central bank will consult on final guidelines by mid-2024 and implement stablecoin systems by 2025.
