Stablecoin Regulation Proposals Published by Bank of England and FCA

Published 7 months ago

The Bank of England and the Financial Conduct Authority (FCA) have announced proposals aimed at regulating stablecoins. The proposals are seen as a method to facilitate quicker and more affordable payments for consumers and merchants.

Changes in Payments Legislation

The UK Treasury is contemplating alterations to the payments legislation to allow retail payments for goods and services using fiat-backed stablecoins. This could potentially include the use of specific stablecoins issued outside of the UK.

FCA’s Discussion Paper

The FCA has issued a Discussion Paper that delves into the proposed regulation of the issuance and custody of fiat-backed stablecoins under the Financial Services and Markets Act 2000. It also explores the usage of these stablecoins as a method of payment under the Payment Services Regulations. Sheldon Mills, FCA’s executive director of consumers and competition, has emphasised the potential of stablecoins to streamline payments, adding that it is crucial to gather diverse viewpoints to formulate rules that are beneficial for all parties involved.

Bank of England’s Approach

A separate Discussion Paper from the Bank of England details how the institution would supervise operators of systemic payment systems using stablecoins. The Bank of England would also monitor other entities offering services to these payment systems, such as stablecoin issuers and wallet providers, to mitigate potential financial stability risks. Deputy Governor for financial stability, Sarah Breeden, underscored the need for robust regulation to ensure public confidence in digital money and payments.

PRA’s Position on Digital Money Risks

The Prudential Regulatory Authority (PRA) issued a ‘Dear CEO’ letter detailing its expectations of deposit-takers and how they should address the risks arising from issuing multiple forms of digital money. The letter also laid out the PRA’s broader expectations for banks concerning their use of digital money for retail or wholesale innovations.

The FCA and the Bank of England are inviting feedback on the proposals from the public and the industry, with a deadline set for 6 February 2024.