The City watchdogs have laid out sweeping plans to bring so-called stablecoins into regulation today as the UK pushes ahead with its effort to become a “global hub” for crypto.
In two discussion papers published today, the Prudential Regulation Authority and the Financial Conduct Authority said they would look to roll out a framework for stablecoins which would look to “protect consumers, prevent money laundering with a robust set of rules and to safeguard financial stability”.
Stablecoins are crypto assets tied to the value of traditional currency, designed to insulate them from the volatility that still shakes much of the sector. Regulators have viewed the assets as a means to potentially speed up and revolutionise the way payments are made in the UK.
In a statement today, the Prudential Regulation Authority said a firmer regulatory framework for the assets could allow them to be safely used as a means of payment in the UK.
“Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place,” Sarah Breeden, the Bank’s deputy governor for financial stability, said in a statement.
“Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.”
Under the proposals laid out by the two regulators, the FCA will police firms looking to issue new stablecoins. The Bank meanwhile is set to oversee operators of “systemic payment systems” using stablecoins which could otherwise pose risks to financial stability.
The proposals will mean stablecoins will either have to be backed by deposits at the Bank of England or by “highly liquid securities”, or some combination of the two, the PRA said.
Among the FCA’s recommendations was a warning that any issuers of stablecoins must comply with its stringent new Consumer Duty rules which force firms to ensure “good outcomes” for consumers.
The Bank of England also wrote to bank bosses warning they must draw a firm line between traditional deposits and stablecoins so as not to confuse customers.
“If deposit-takers or their groups want to issue e-money or regulated stablecoins to retail customers, then this should be done from separate non-deposit-taking and insolvency-remote entities,” the BoE said.
Firms have now been invited to weigh in on the plans before February 6th next year.
Stablecoins have been viewed by governments and regulators as a less volatile segment of the market that could help revolutionise payments. However, deputy Bank governor Jon Cunliffe has warned that most would currently fail to meet the Bank’s standards for “robustness and uniformity”.
The update from regulators today comes after City Minister Andrew Griffith last week confirmed the government would press ahead with plans to regulate the sector last week.
“The government’s ambition to make the UK a global hub for cryptoasset technologies remains steadfast,” Griffith said in a statement.