The Bank of England (BOE) and the UK’s Financial Conduct Authority (FCA) are actively considering the stablecoin regulations linked to the British pound, as these digital assets have the potential for widespread use in payments. To mitigate potential risks, the BOE is contemplating the imposition of limits on individual stablecoin holdings.
Public Feedback on Proposed Stablecoin Regulations
The BOE and FCA have initiated a public feedback process to gather input on their proposed regulations for stablecoins and the broader cryptocurrency sector. Interested parties are encouraged to provide feedback by February 6, 2024.
The primary focus of the BOE is to regulate what it refers to as “systemic stablecoins” to prevent disruptions to financial stability. These regulations aim to ensure that the use of stablecoins in the UK’s payment ecosystem is both secure and reliable.
FCA Oversight of Fiat-Backed Stablecoins
The FCA, on the other hand, is requiring issuers of fiat-backed stablecoins to obtain authorization for circulation within the UK. Such stablecoins must be fully backed by assets of equivalent value, and issuers must guarantee their easy conversion into fiat currencies.
Both regulatory bodies are resolute in their commitment to preserving a clear distinction between stablecoins and traditional deposits. These regulations will actively prohibit regulated stablecoin issuers from offering income or interest to consumers, even in high-interest rate environments.
Driven by Global Concerns and Terraform Labs Collapse
The UK government’s recent plans for cryptocurrency regulation have also prompted these regulatory proposals, influenced by global concerns surrounding the proliferation of stablecoins and also the notable collapse of Terraform Labs.
The core objective of these regulatory proposals for stablecoins and the broader cryptocurrency sector is to strike a balance between fostering innovation while safeguarding financial stability. These efforts also align with global initiatives to address emerging challenges in the cryptocurrency industry.