The Bank of England (BoE) has issued a warning to lenders, urging them to ensure that customers do not confuse new forms of electronic money, including ‘stablecoins’, with traditional bank deposits that are protected against bank failures. Stablecoins are a type of cryptocurrency that is backed by either a fiat currency like the pound or the dollar, or an asset. Despite their growing popularity, the stablecoin sector is still relatively small compared to the wider financial industry.
The BoE’s announcement comes as regulators face mounting pressure to keep up with advancements in the private sector, particularly in the realm of digital payments. Central banks, including the BoE, are exploring the possibility of issuing their own digital currencies.
In response to these developments, the BoE has proposed a regulatory framework for systemic payment systems that utilize stablecoins, as well as related service providers such as banks and payment companies. The central bank argues that if these systems pose similar risks to other forms of payment systems, they should be subject to equivalent regulatory standards.
Both the BoE and the Financial Conduct Authority (FCA) have outlined plans for regulating stablecoins and their issuers. The BoE has also issued a letter to bank CEOs, detailing how they should handle tokenized deposits if they choose to offer them. Specifically, the BoE advises that if deposit-taking institutions or their groups wish to issue e-money or regulated stablecoins to retail customers, they should establish separate entities that are not involved in deposit-taking and are protected from insolvency.
The BoE and the FCA have published preliminary proposals for regulating stablecoins and are seeking feedback from industry stakeholders until February 6.
Stablecoins have the potential to revolutionize the speed and cost of payments, making them faster and more affordable for all parties involved. Sheldon Mills, the FCA’s Executive Director for Consumers and Competition, emphasized the importance of safely and securely harnessing this innovation.
As regulators work to strike a balance between promoting financial innovation and ensuring consumer protection, it remains to be seen how the regulatory landscape for stablecoins will evolve in the UK. The proposals put forth by the BoE and the FCA will undoubtedly shape the future of the stablecoin industry in the country.
More detail via Daily Mail Online here… ( Image via Daily Mail Online )