- The Bank of England (BOE) is setting its regulatory gaze on what it terms “systemic stablecoins” – digital currencies pegged to traditional fiat like the pound sterling, which, if adopted on a large scale, could potentially disrupt financial stability.
- The Financial Conduct Authority (FCA), on the other hand, will cast a wider net across the entire crypto sector, focusing specifically on consumer protection.
Stablecoins: A Crossroads Between Traditional Finance and Cryptocurrency
The rationale behind this increased regulatory focus stems from the rising prominence of stablecoins in the digital economy. These digital currencies, unlike their more volatile counterparts, are tethered to the value of an underlying asset, often fiat currency, making them a key interest in the payment systems landscape.
A Two-Pronged Regulatory Approach
The BOE’s approach zeroes in on stablecoins that are likely to be widely used in payment systems – currencies that could feasibly challenge the conventional financial frameworks if left unchecked. A recent statement highlighted the importance of scrutinizing stablecoins linked to the pound to ensure they do not unsettle the nation’s financial equilibrium.
In conjunction with the BOE’s publication, the Prudential Regulations Authority (PRA) issued guidance to deposit-takers. It highlighted the need for traditional financial institutions to shield themselves against potential spillover risks from the digital currency space. The PRA stressed that protective measures for fiat currency depositors are distinct from, and more robust than, those currently afforded to stablecoin users.
The FCA’s Consumer-Centric Vision
The FCA’s document elaborates on the necessity for stablecoin issuers to obtain proper authorization before their currencies enter circulation within the UK. It advocates for a robust backing of these stablecoins by assets that can withstand technological and liquidity challenges, ensuring seamless redemption for fiat currencies.
Moreover, the FCA suggests that stablecoin issuers should maintain the financial benefits derived from the interest on assets backing the digital currencies. This proposal seeks to delineate stablecoins from traditional bank deposits, yet it remains aware of the potential consumer perceptions, especially in scenarios where interest rates significantly ascend.
A Unified Front for a Crypto-Friendly Future
This regulatory advance aligns with the UK government’s broader ambitions to position the country as a pivotal crypto hub. Following the integration of stablecoins into the nation’s payment regulation earlier in June, the subsequent legislative focus will be on fiat-backed stablecoins, expected to make headway in the coming year.