Tech companies can now issue payment-based stablecoins in the UK under new policy

Temitope Akintade
Tech companies can now issue payment-based stablecoins in the UK under new policy

The United Kingdom’s (UK) central bank, the Bank of England (BOE), on Monday released its plan to govern the stablecoin market. 

According to the published paper, the BOE and the Financial Conduct Authority (FCA) plan to follow the rules released by the UK government last week to oversee the digital asset industry.

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As per the new proposal, regulations for fiat-backed stablecoins will begin in early 2024 and the BOE will regulate systemic stablecoins while the FCA will govern the larger crypto market.

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Rishi Sunak United Kingdom Prime Minister

Recall that the UK Prime Minister Rishi Sunak had announced earlier in the year that he wants the nation to become a crypto hub. This introduction of clear rules for digital assets and crypto firms falls within the UK’s goals. 

What this means for stablecoins in the United Kingdom

These proposals follow the broader plans published by the United Kingdom Government for overseeing the crypto sector last week. 

Per the paper, The Bank of England (BOE) will regulate “systemic stablecoins” that are in wide enough circulation to potentially disturb financial stability, while the Financial Conduct Authority (FCA) will oversee the wider crypto sector.

United Kingdom(UK) crypto Liz Truss

According to the statement, the BOE’s plans focus on stablecoins pegged to the value of the British pound because the central bank considers these likely to be used widely for payments. Also, the central bank is exploring the idea of limiting individual stablecoin holdings. 

Additionally, sources say the BOE’s proposals would allow companies to issue payments-focused, fiat-backed stablecoins in the United Kingdom as long as they are approved to do so. What this means is that big tech companies like Meta and PayPal will be able to issue payments-focused stablecoins under the proposed rules provided they meet the criteria.

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The FCA, on the other hand, said issuers will need to seek authorization to circulate fiat-backed stablecoins in or from the United Kingdom. It wants stablecoins to be backed by “appropriate” assets to equal the value in circulation. It also wants issuers to make sure that the crypto can be easily redeemed for fiat currencies regardless of technical or liquidity issues.

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Also, the watchdog proposed that regulated stablecoin issuers should be allowed to retain revenues derived from “interest and return from the backing assets,” which will help set a “clear distinction between stablecoins and deposits.”

According to the paper, the FCA does not want regulated stablecoin issuers to pay income or interest to consumers:

We are conscious that this may be perceived as unfair to consumers, in the event that interest rates continue to remain high and/or go up significantly (given that the regulated stablecoin backing assets are expected to be protected as client assets).”

What is next?

According to the Bank of England, the discussion paper published on Monday represents “an exploratory phase in developing the new regime.” After regulators receive feedback from stakeholders on these proposals, they will consult on the final rules.

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The Bank of England

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The FCA and the central bank aim to consult on final rules by mid-2024, and implement the stablecoin regimes by 2025, according to an additional document published with the discussion papers.

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