UK FCA and BoE seek feedback after proposing stablecoins for retail payments

The Financial Conduct Authority (FCA) and the Bank of England are soliciting feedback on their collaborative approach to regulating stablecoins within the UK’s financial landscape.

Stablecoins, digital assets designed to maintain a stable value, are being considered for future use in retail payments, prompting these regulatory bodies to propose a framework that ensures consumer protection, financial stability, and anti-money laundering compliance.

“Stablecoins have the potential to make payments faster and cheaper for all”

The FCA’s Discussion Paper delves into the regulatory considerations for the issuance and holding of stablecoins with a value pegged to a fiat currency. Concurrently, the Bank of England’s paper outlines its strategy for overseeing systemic payment systems employing stablecoins, addressing the potential financial stability risks associated with their widespread adoption for retail payments.

Sheldon Mills of the FCA highlighted the potential of stablecoins to revolutionize payments by making them more efficient, thus emphasizing the importance of establishing a safe and secure environment for their adoption. The regulators are focused on creating balanced rules that cater to consumer and industry needs while fulfilling regulatory objectives.

“Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilise this innovation safely and securely. Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives,” said Mills. “We look forward to continuing our engagement with Government, our partners and the wider crypto industry as we move forward with the Government’s first phase in developing the UK’s crypto regulation regime and beyond.”

Sarah Breeden from the Bank of England remarked on the prospects of stablecoins in enhancing digital retail payments, underscoring the necessity for clear and robust regulation to foster safe innovation. The overarching goal is to enable firms to understand and manage associated risks, ensuring public confidence in digital money and payment systems.

“Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place. Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments”, Breeden added.

The call for feedback, open until 6 February 2024, is part of a broader initiative by UK financial authorities to align digital money innovation with strict regulatory standards. This includes the Prudential Regulatory Authority’s guidance to deposit-takers on managing risks tied to digital money issuance and a cross-authority roadmap detailing how UK authorities’ regulatory measures for digital money issuers will interplay.

In tandem with these forward-looking discussions, the FCA continues to caution that cryptoassets, including stablecoins, largely remain unregulated and high-risk, lacking consumer protection in the event of adverse outcomes. The integrated approach of the FCA, Bank of England, and PRA demonstrates the UK’s commitment to nurturing innovation while safeguarding the financial system and its participants.