[NEWS] Bank of England and Financial Conduct Authority announce proposed stablecoin regulation plans

The Bank of England (BoE) announced new plans to regulate stablecoins on the 6th. The proposals by the BoE and the FCA follow the UK government's plans to oversee the cryptocurrency industry announced last week.

The BoE and FCA proposed to introduce stablecoins, designed to be pegged to fiat currencies, into the real economy so they can be used to pay for goods and services.

The proposals would see the BoE take direct oversight responsibility for entities that issue stablecoins. They would also require payment systems using digital tokens to be fully backed by the BoE. Issuers of stablecoins would also be required to explain how they manage redemptions.

The UK is currently facing growing concerns that its departure from the EU could undermine London's status as one of the world's leading financial centers. The proposals are expected to be the latest step in the UK's efforts to reposition itself as a hub for digital assets.

Last week, the UK Treasury published its response to a consultation on the future of cryptocurrency regulation. It was noted that stablecoins would be regulated under existing rules for traditional payment service providers. It also added that the Treasury proposal was based on concerns in the cryptocurrency industry, including the collapse of FTX.

Sheldon Mills, executive director of consumer and competition at the FCA, said, "Stablecoins have the potential to make payments faster and safer for everyone, which is why we want to ensure that businesses can use this innovation safely and securely."

Sarah Breeden, vice president for financial stability at the BoE, added that stablecoins could "strengthen digital retail payments" in the UK.

Possibility of allowing overseas-issued stablecoins

Stablecoin prices often deviate from the price of fiat currencies. It is still fresh in our memory that the algorithmic stablecoin TerraUSD, which was linked to the US dollar, depecked and crashed in May last year. This caused confusion in the cryptocurrency market and led to a subsequent market slump.

The proposal explains that existing stablecoins do not currently meet the oversight criteria under the BoE's proposed regime, as they are primarily used for cryptocurrency payments, not retail payments.

However, this situation could change quickly if a business grows rapidly, or if a stablecoin partners with an existing large company that already has a large customer payment base. For example, if it is adopted by the Apple Store or Google Play, it is possible that a major change will occur.

The proposal also considers the possibility of allowing overseas stablecoins to be used for payments in the UK. In the Treasury's view, payment arrangers would be licensed entities under the existing UK payment services regulations, and overseas stablecoins would need FCA approval before being allowed to be used in the UK.

In its proposal, the BoE also points out that the Treasury's proposal to accommodate overseas stablecoins in the economy "may have not only advantages but also disadvantages."

Reference:BoE announcement
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