Bank of England to introduce new regulations for stablecoins
The Bank of England (BoE) is considering implementing restrictions on stablecoins for payments and developing new regulations to ensure financial stability, according to deputy governor Jon Cunliffe.
The Bank of England (BoE) is considering imposing restrictions on stablecoins as a form of payment while developing new regulations for the sector, according to deputy governor Jon Cunliffe. He revealed that the BoE and the Financial Conduct Authority (FCA) intend to consult on new stablecoin regulations later this year during his speech at the annual Innovate Finance Global Summit.
In May 2022, the BoE stated it would regulate stablecoins with potential consequences for financial stability. Concurrently, the Financial Services and Markets Bill is progressing through Parliament. This bill will assist regulators in establishing cryptocurrency rules and incorporating stablecoins into current payment legislation.
Cunliffe emphasized the importance of balancing competition and innovation in the payment sector while safeguarding against rapid, disruptive changes that could jeopardize financial stability.
The upcoming regulations will treat stablecoins similarly to commercial bank money, including requirements for redemption from stablecoin arrangements in fiat currency at par value on demand.
However, unlike commercial bank deposits, stablecoins will not receive the same protections against failure. The Financial Services Compensation Scheme (FSCS) insures bank customers’ deposits up to £85,000 (approximately $105,059).
Cunliffe explained that the stablecoin regulations would be based on principles established by the Bank for International Settlements’ committee on payments and market infrastructure and the International Organization of Securities Commissions in the previous year.
Cunliffe also discussed the potential for new ledger technology, which underpins cryptocurrencies, to pave the way for digital banknotes issued by central banks or tokenized bank deposits. Smart contracts could be used to settle transactions with these assets. He underscored the necessity of devising a strategy for tokenized bank deposits in tandem with the stablecoin regulatory framework.
Cunliffe believes this approach would allow both banks and non-banking institutions to clearly understand the possibilities and requirements of the respective regulatory regimes when developing payment solutions using innovative technologies.
As the BoE explores the concept of a digital pound, it is also examining methods for ensuring tokenized transactions are settled in central bank money. One potential solution could involve creating a new ledger system, Cunliffe suggested.
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