Darya is a crypto enthusiast who strongly believes in the future of blockchain. Being a hospitality professional, she is interested in finding the ways blockchain can change different industries and bring our life to a different level.
Currently, the UK government is consulting on a new crypto regulation. Its goal is not only to minimize the risks posed by digital currencies but also to ensure that the UK is considered as a place for crypto firms to do business.
The Bank of England (BoE) is considering introducing restrictions on the use of stablecoins in payments. As Deputy Governor Jon Cunliffe explained in his speech at the Innovate Finance Global Summit that took place in London on Monday, the use of stablecoins is posing a threat to financial stability. In particular, Cunliffe questioned the way stablecoins are backed by assets as well as mentioned the risks of their competition with fiat currencies.
On the one hand, stablecoins represent innovation in the payment system. But on the other hand, the economy needs some time to guard against changes that might be disruptive unless proper regulation is in place.
Jon Cunliffe stated:
“Stablecoins offer the possibility of greater efficiency and functionality in payments. But they currently sit outside most of the regulated framework and it is extremely unlikely that any of the current offerings would meet the standards for robustness and uniformity we currently apply both to commercial bank money and to the existing payment systems that transfer commercial bank money between the parties to a transaction.”
To regulate the use of stablecoins, the Bank of England is planning to introduce a regulatory framework that will cover operators of systemic payment systems and systemic service providers using “digital settlement assets,” including stablecoins used for payments, at a systemic scale in the UK.
According to Cunliffe, systemic stablecoins (those used for payments at a systemic scale) will need to be backed with high-quality and liquid assets to meet requirements set out by the Financial Policy Committee. These could be either deposit at the Bank of England or very highly liquid securities, or even a combination of both. Notably, the term “stablecoins” will be applicable only to those tokens that are backed by fiat funds. Thus, companies involved in activities relating to non-fiat-backed stablecoins may no longer be able to refer to such crypto-assets as being stablecoins or use similar terms in their marketing or other customer-facing materials.
UK’s Progress in Stablecoins’ Regulation
Back in July 2022, the Bank of England called for stricter rules on using cryptocurrencies. But since the UK government announced that stablecoins can be used as a “recognized form of payment,” the Bank of England said it would intervene in the industry regulation to direct and oversee collapsing stablecoins.
The new regulation that is expected to come into effect later this year will follow the principles established by the Bank for International Settlements’ Committee on Payments and Market Infrastructure and the International Organization of Securities Commissions in 2022. Stablecoin arrangements will be regulated similarly to commercial bank money, which means that the coins should be redeemable from the stablecoin arrangement, in fiat money, at par value, and on demand.
Currently, the UK government is consulting on a new crypto regulation. Its goal is not only to minimize the risks posed by digital currencies but also to ensure that the UK is considered a place for crypto firms to do business. Later this year, we can expect clearer guidance.