Enhanced Authority: Bank of England Set to Bolster Regulation of Stablecoins

The dynamics of regulatory authority within the United Kingdom’s financial landscape could be in for a recalibration, as the Bank of England (BoE) edges toward a more pivotal role in contrast to the country’s principal financial regulatory entity, the Financial Conduct Authority (FCA). In a comprehensive 40-page consultation response issued on August 7, His Majesty’s Treasury delves into this potential shift.

Initiated in 2022, the consultation titled “Payments Regulation and the Systemic Perimeter” sought to solicit market inputs on overhauling the BoE’s payments perimeter in light of the evolving landscape of financial stability risks.

The culmination of this effort outlines a series of measures directed at governing “systemically important stablecoins.” The most significant takeaway from the response is the government’s intention to establish a shared oversight model for stablecoins, jointly administered by both the BoE and the FCA.

Nonetheless, a pivotal aspect of this proposal entails furnishing the BoE with the authority to preempt the FCA’s interventions with regards to stablecoin providers. Furthermore, the Prudential Regulation Authority would also be empowered to deter the FCA from pursuing specific actions if these actions are deemed to pose risks to financial stability.

While the consultation response underscores that a majority of respondents acknowledged the necessity of affording the BoE primary supervision over future payment entities with systemic significance, there were also calls for greater elucidation on the constraints of this authority.

BoE Governor Andrew Bailey, in remarks made in July, asserted that both cryptocurrencies and stablecoins fall short in meeting fundamental criteria of singleness and settlement finality, thereby negating their classification as currency. He suggested instead the exploration of “enhanced digital money” as an alternative avenue of development.

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