Bank of England and FCA outline plans to regulate stablecoins into mainstream

investmentweek.co.uk:

In the paper, the BoE said that lenders will be pushed to make it clear to customers that stablecoins are not standard deposits, which are guaranteed against bank failures.

In a paper published today (6 November), the Bank of England and FCA requested feedback on their proposed approach to regulating stablecoins, aiming to protect consumers, prevent money laundering and safeguard financial stability.

Unlike normal cryptocurrencies, stablecoins are pegged to a fixed amount — normally the dollar — either through backing with assets or an algorithmic process.

Deciphering stablecoins: A financial stability risk?

Stablecoins have increasingly attracted attention from regulators, especially due to the collapse of major algorithmic stablecoin Terra (or TerraUSD) last year, while their size has swelled to over $125bn worldwide.

In the paper, the BoE said that lenders will be required to make it clear to customers that stablecoins are not standard deposits, which are guaranteed against bank failures.

«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.

There will be a holding limit to avoid stablecoins being used for wholesale purposes, while stablecoin issuers overseas will have to ensure UK consumers have the same protections as for UK-issued coins. The issuers would also require FCA approval under the UK's existing payment services regulations.

The deadline for responses for the discussion paper is 6 February 2024.

Treasury finalises plans to regulate crypto industry

«Stablecoins have the potential to make payments faster and cheaper for all, and that is why we want to