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The Bank of England and the Financial Conduct Authority (FCA) have introduced proposals for the regulation of stablecoins, positioning them as a potent solution for expediting and reducing the cost of payments for consumers and retailers.
The UK Treasury is actively exploring changes to payments legislation to allow the use of fiat-backed stablecoins for retail transactions. This could encompass the possibility of permitting certain stablecoins issued outside the UK for payments within the country.
The FCA’s Discussion Paper delves into the proposed regulations governing the issuance and custody of fiat-backed stablecoins under the Financial Services and Markets Act 2000. It also scrutinizes the utilization of these stablecoins for payments under the Payment Services Regulations.
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, highlights the potential of stablecoins to enhance payment efficiency. He emphasizes the need to harness this innovation safely and securely, with a focus on creating balanced rules that benefit both consumers and businesses.
The Bank’s Discussion Paper outlines its approach to regulating operators of systemic payment systems using stablecoins. These are payment systems that, if extensively used for retail transactions in the UK, could pose risks to financial stability. The Bank’s regulatory scope extends to entities providing services to these payment systems, including stablecoin issuers and wallet providers, where they could also pose financial stability risks.
Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England, emphasizes the need for robust and clear regulation to support the potential benefits of stablecoins in digital retail payments. The goal is to foster safe innovation while ensuring that firms comprehend and manage the associated risks, ultimately enhancing public confidence in digital money and payments.
In addition, the Prudential Regulatory Authority (PRA) has issued a letter to CEOs outlining its expectations for addressing the risks associated with the issuance of various forms of digital money and mitigating contagion risks. The letter also articulates the PRA’s broader expectations for banks in their utilization of digital money for both retail and wholesale innovations, covering aspects such as operational resilience, anti-money laundering, counter-terrorism financing, and liquidity and funding risks.
Both the FCA and the Bank invite feedback from the public and industry stakeholders until February 6, 2024.
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