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Bank of England and UK’s FCA Propose Plans to Regulate Stablecoins

The Bank of England (BoE) and the UK’s financial regulator have jointly introduced plans to regulate stablecoins through discussion papers released on Monday. The regulatory measures primarily target sterling-denominated stablecoins, given their potential use in everyday payments. The bank emphasized the importance of policymakers outlining regulatory requirements to enable innovators to plan ahead and ensure the safe adoption of innovations. The discussion paper is open for industry feedback on the initial proposals, with the Bank planning subsequent consultations on the final proposed regime, to be adopted over time as the industry develops.

The Bank of England (BoE) intends to regulate entities offering services to payment systems, including stablecoin issuers, to mitigate potential risks to financial stability in the UK. Despite the risks, stablecoins have the potential to enhance digital retail payments in the country, according to Sarah Breeden, Deputy Governor for Financial Stability at the BoE. The proposed regulations aim to facilitate safe innovation, ensuring that firms comprehend and manage the associated risks, instilling confidence in the public regarding various forms of digital money and payments. The consultation paper is open for feedback from the public and industry until February 6, 2024.

Regulators are On-Track

The Financial Conduct Authority (FCA) has released a discussion paper outlining proposed regulations for issuing and holding stablecoins. The FCA views stablecoins as a means of achieving faster and more cost-effective payments and aims to provide firms with the opportunity to utilize this innovation securely. Sheldon Mills, Executive Director at the FCA, emphasized the importance of gathering input from various stakeholders to create rules that are proportionate, beneficial for consumers and firms, and aligned with the regulatory objectives. Additionally, the Prudential Regulatory Authority (PRA) issued a “Dear CEO” letter addressing innovative uses of deposits, e-money, and stablecoins, exploring how deposit-takers should manage risks associated with issuing various forms of digital money.

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