Bank of England and FCA to regulate pound-denominated stablecoins

Bank of England (BOE) and the Financial Conduct Authority (UK Financial Conduct AuthorityThe central bank announced in a discussion paper released on Monday that it would manage a pound-denominated stablecoin.

According to the discussion paper, asset-backed stablecoins that create credit, liquidity or market risks are not suitable for use in systemic payment systems under the new banking regime.

The Bank of England said that stablecoins that are fully backed by central bank deposits are most suitable for systemic payment systems that use stablecoins.

BOE said it intends to rely on the FCA’s new regulatory regime for stablecoin custodians to reduce risks associated with wallet providers, but added that it could also apply its requirements directly to the regulator if necessary.

The UK Treasury announced last week that it plans to introduce cryptocurrency regulation in the country in phases, starting with rules related to fiat-backed stablecoins in early 2024.

If a custodial wallet provider provides custody services for a majority of system-settled stablecoins in circulation or provides these services to multiple payment systems, it may be subject to direct regulation by the Bank of England.

The bank is seeking feedback on the proposed regulatory regime until February 6, 2024, before consulting with the FCA on final guidelines in mid-2024. The final regulations will take effect in 2025.

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