The Bank of England may soon have more power over stablecoin regulation.
The UK is contemplating a power shift, which would give a stablecoin supervisory role to the Bank of England.
A 40-page consultation response, made public by His Majesty's Treasury on August 7th, throws light on the UK government's intention to adjust the power balance between the Bank of England (BoE) and its chief financial regulator, the Financial Conduct Authority (FCA).
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Initiated in 2022, the consultation, titled “Payments Regulation and the Systemic Perimeter,” sought market feedback, considering potential modifications to the BoE's regulatory boundary in light of emerging financial stability risks.
The document details proposed regulations for what it termed as “systemically important stablecoins.” A key highlight from the report suggests a collaborative approach, envisioning a co-regulation model where both the BoE and the FCA jointly supervise stablecoin operations.
However, a rather intriguing revelation is the suggested power given to BoE. Such a change would enable the BoE to prohibit the FCA from intervening with a stablecoin provider's operations. Additionally, the Prudential Regulation Authority will be likely given a say in preventing FCA action, especially if such interference could trigger "financial stability concerns."
Delving deeper, the report sheds light on public sentiment. While a significant majority agree with the need for BoE supremacy in overseeing crucial payment entities of the future, some respondents voiced concerns over limitations of authority's power.
Reflecting on the broader digital currency landscape, BoE's Governor, Andrew Bailey, in July made a rather interesting observation. Bailey claimed that stablecoins and cryptocurrencies cannot be considered money as they fail the tests of singleness and settlement finality. Therefore, the governor is suggesting creating more "enhanced digital money."
In a rapidly evolving digital currency landscape, the UK's potential move underscores the importance of clear, strategic oversight, ensuring both stability and innovation coexist.