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Stablecoins as Mainstream Payment Method? Bank of England Paves the Way in UK

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Teuta Franjkovic
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Key Takeaways

  • The BoE and FCA released significant documents on stablecoin regulation.
  • Focus is on the importance of stablecoin regulation as a precursor to broader cryptoasset regulation.
  • UK Treasury’s latest paper set the stage for a more detailed discussion by the regulator.

In April 2022, the UK government unveiled its ambition to transform the nation into a center for cryptocurrency asset investment and technology with a focus on stablecoins.

Now, the UK’s Financial Conduct Authority (FCA) and the Bank of England (BoE) have initiated a consultation process for two documents addressing stablecoin regulations, with a focus on ensuring the secure and system-wide use of these assets in future payment systems.

Setting Stage for Broader Crypto Oversight

On Nov. 6, a set of documents about stablecoin regulation were released in the UK. Both the Bank of England (BOE) and the Financial Conduct Authority (FCA) published a discussion paper. The BOE published a “cross-authority roadmap” to connect them, along with a letter sent to CEOs of deposit-taking banks by the BOE’s Prudential Regulatory Authority (PRA).

On October 30, His Majesty’s Treasury released a brief paper outlining regulatory ambitions, setting the stage for the barrage of announcements that followed. The identical subject was covered in considerably more detail in the FCA report.

According to the FCA, regulating stablecoins is the first step towards regulating crypto assets more broadly. Potential use cases for stablecoins at retail and wholesale were described in the discussion paper. Its topics of debate were reporting and auditing, the issuer’s coin backing, and the independence of the custodian of the backing assets.

The focus of the article was on potential applications of the “same risk, same regulator outcome” idea. It suggested organizing company affairs utilizing Thisto the senior management structures, systems, and controls sourcebook, as well as the current client assets regime as the foundation for redemption and custodianship policies. Financial crime and operational resilience frameworks are two of the many that now exist.

The FCA is thinking of modifying the current prudential standards for licensed stablecoin issuers and custodians from the current framework and eventually applying it to other cryptocurrency assets.

Retail-Focused Stablecoin Application

The BOE study also examined the application of a retail-focused stablecoin based on sterling in systemic payment systems. It included the transfer function, standards for wallet providers, and other services. It also touched on topics that the FCA already covered, such as deposit protection and stablecoin issuers.

The BOE stated that it will “rely on” the FCA to regulate custodians, although it did not exclude the prospect of enforcing its regulations if needed. It identified possible regulatory hot spots. Among these are the Know Your Customer and Anti-Money Laundering regulations for off-chain transactions and unhosted wallets.

Regulatory landscape for stablecoins issued by non-banks and banks
Credit: Bank of England

The BOE PRA letter stressed the need to preserve clarity regarding the distinction between “e-money or regulated stablecoins” and other forms of deposits:

“With the emergence of multiple forms of digital money and money-like instruments, there is a risk of confusion among customers, especially retail customers, if deposit-taking entities were to offer e-money or regulated stablecoins under the same branding as their deposits.”

Institutions that accept deposits ought to restrict their innovation to deposits. The PRA recommended that issuance activities should have unique branding. If an issuer wants to accept deposits as well, they should act promptly and collaborate with the PRA. Lastly, it pointed out that guidelines and specifications also limit advances in deposit-taking.

Estimated timeline for regulators' next steps on stablecoins
Credit: Bank of England Prudential Regulatory Authority

A timeframe with a 2025 implementation date was specified in the BOE roadmap.

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Teuta is a seasoned writer and editor with more than 15 years of experience. She has expertise in covering macroeconomics and technology as well as the cryptocurrency and blockchain industries. She has worked for several publications as a journalist and editor, including Forbes, Bloomberg, CoinTelegraph, Coin Rivet, CoinSpeaker, VRWorld and Arcane Bear. Teuta began her professional career in 2005, working as a lifestyle writer at Cosmopolitan in Croatia. From there, she branched out to several other publications, covering mainly business and the economy. She then turned her attention to the world of cryptocurrency and blockchain, believing that crypto is among the most important inventions in the history of humanity. Her involvement in fintech began in 2014 and she has since lent her expertise in writing, editing and gathering information about the world of crypto, blockchain, NFTs and Web3. An all-round news hound, mentor, editor, and writer, Teuta enjoys teamwork and good communication. She holds a WSET2 diploma and has a thing for chablis, punkrock music and shoes. She also holds a double MA in Political science and Entrepreneurship.
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