CryptoUK response to the Bank of England’s proposed regulatory regime for sterling-denominated systemic stablecoins
On 10th November, the Bank of England (BoE) published a consultation paper setting out its proposed regulatory regime for sterling-denominated systemic stablecoins. This paper is aimed at preparing for a future where new forms of digital money may be widely used for payments alongside existing ones, offering valuable choice for the public.
Key highlights from our response:
We welcome the BoE’s proposal to allow systemic stablecoin issuers to receive a return on a proportion of their backing assets through holding up to 60% of backing assets in short-term sterling-denominated UK government debt. We nonetheless have some concerns that the requirement for at least 40% of backing assets to be held in the form of central bank deposits at the BoE may place the UK (and sterling-denominated stablecoins) in an uncompetitive position on the global stage given the approach taken by other markets.
We broadly welcome the BoE’s proposed step-up regime, which recognises that issuers that are systemic at launch need different treatment. That said, we do have some concerns about the appropriateness of this regime, particularly for early stage and smaller stablecoin models recognised as systemic at launch – our members suggest that aligning more closely to the Financial Conduct Authority (FCA) regime would lower barriers to entry and allow the UK market to be competitive to new entrants.
We would highly recommend that the BoE reviews and understand the requirements in other jurisdictions and ensure that the UK is favourably positioned in a global stablecoin marketplace. The impact on issuers of the BoE regime should be considered – where too many onerous requirements are imposed, the business case for establishing sterling-denominated stablecoins in the UK may be undermined. Ensuring the competitiveness of the UK as a stablecoin market must be a core design principle.
We think the greatest impact on the usability of stablecoins will arise in the presence of holding limits for businesses. Every retail business will likely need to seek an exemption to hold stablecoin amounts in excess of prescribed holding limits, as well as any stablecoin trading business.
The BoE’s concerns around potential reductions in commercial bank deposit funding should be considered in light of how other major jurisdictions have approached reserve structuring. Under MiCA, euro-denominated stablecoin issuers are required to hold deposits with authorised commercial banks and in high-quality liquid assets, rather than directly with the European Central Bank (ECB).
We agree with the BoE’s view that there are complexities around public permissionless blockchain ledgers. We also recognise that their continued use in the stablecoin market is contingent on ledgers meeting certain expectations around accountability, settlement finality and operational resilience. However, we think it is important for the BoE to recognise that the technology and infrastructure behind the ledgers is mature and the actual associated risks are often overstated. To appropriately calibrate the regulatory approach, a more proportionate and technologically neutral view of the ledgers should be considered.
