Earlier this week Sarah Breeden, the Deputy Governor of the Bank of England, gave a speech at the Point Zero Forum discussing the topic of stablecoins, hinting at a future direction for the UK. In 2023 the UK unveiled proposals involving two separate regulatory regimes: one for systemic stablecoins versus another for non-systemic stablecoins. Her speech indicated potential shifts from these initial proposals, responding to global developments and industry feedback.
For example, the Bank may allow systemic stablecoin issuers to earn some interest. And it is considering differentiating between payment stablecoins versus those used for other purposes. 2023 stablecoin proposals Under the 2023 proposals, systemic stablecoins would be regulated by the Bank of England and backed by central bank money, making them very safe and easily interchangeable with regular currency, maintaining the “singleness of money”.
However, the stablecoin issuer would earn zero interest, undermining a key business model. Non-systemic stablecoins would be regulated by the Financial Conduct Authority (FCA) and be allowed to earn interest on the backing assets, which would consist of short term government bonds and commercial bank deposits. Future stablecoin regulation direction In her speech, Ms Breeden noted that other countries have moved forward with stablecoin legislation since the UK’s 2023 consultation, highlighting differences in the UK’s proposals, which was also reflected in industry feedback.
As a result, the Bank is reviewing potentially allowing systemic stablecoins to earn some interest. The 2023 proposals primarily addressed fiat-backed stablecoins, without distinguishing between use cases. Deputy Governor Breeden believes it might be helpful to target stablecoins used for mainstream payments, versus those used for investment purposes, or as part of the cryptocurrency ecosystem.
Several foreign legal frameworks target payment stablecoins. She also noted the Bank’s focus on the singleness of money is perhaps most relevant to systemic stablecoins and a lesser issue for smaller ones. However, she is concerned that network effects could result in a stablecoin growing very rapidly.
The previous proposals would have created a cliff effect, where a stablecoin suddenly stops earning interest when it becomes systemic. “We need to be mindful of what that glidepath means for stablecoin business models,” said Ms Breeden. However, she emphasized that the central bank will keep a focus on financial stability.
Sandboxes have been useful for other types of innovation. She considered the potential for a stablecoin sandbox to allow for further dialogue and to explore interoperability between different types of money as well as stablecoin business models. This reconsideration of stablecoin regulation comes as HM Treasury recently issued draft crypto regulations that outlined that only UK-based stablecoin issuers would be subject to regulation.
The detailed rules will be formulated by the central bank and the FCA. Normally you should see a Tripetto form over here, but it needs JavaScript to run properly and it seems that is disabled in your browser. Please enable JavaScript to see and use the form.
