The UK government is deliberating a potential shift in regulatory dynamics, aiming to strengthen the authority of the Bank of England (BoE) over stablecoins, as detailed in a 40-page consultation response released by the Treasury on August 7.
Amid evolving financial stability risks, the UK government initiated a consultation titled “Payments Regulation and the Systemic Perimeter” in 2022. The objective was to gather market insights for reforming the BoE’s payments perimeter.
Joint Supervision for Stablecoins
The consultation’s final publication outlines strategies for overseeing “systemically important stablecoins.” Notably, the government seeks collaborative oversight, designating both the BoE and the Financial Conduct Authority (FCA) as co-supervisors of stablecoins.
Under the proposed approach, the BoE would wield the authority to prevent the FCA from interfering with a stablecoin provider. Additionally, the Prudential Regulation Authority would gain the ability to restrict the FCA from specified actions if they raise concerns about financial stability.
Clarity Amidst Acceptance
Most respondents acknowledged the necessity of granting the BoE primary supervision over future payment entities with systemic recognition. Nevertheless, certain participants called for enhanced clarity regarding the scope of the BoE’s regulatory power.
In a previous stance, BoE Governor Andrew Bailey asserted that cryptocurrencies and stablecoins do not meet essential criteria for singleness and settlement finality, disqualifying them as forms of currency. Instead, Bailey proposed the development of “enhanced digital money” as a viable alternative.
As the UK government advances discussions on regulatory adjustments, the prospect of empowering the BoE in the oversight of stablecoins marks a significant step in shaping the future of digital financial systems.