The Bank of England (BOE) and the Financial Conduct Authority (FCA) will regulate sterling-denominated stablecoins, the central bank announced in a discussion paper released on Monday.
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- Stablecoins backed with assets that generate credit, liquidity or market risk are not suitable for use in systemic payment systems under the bank’s new regime, according to the discussion paper.
- Stablecoins fully backed by central bank deposits are the most appropriate for systemic payment systems using stablecoins, according to the BOE.
- The BOE said it intends to rely on the FCA’s new regulatory regime for stablecoin custodians to mitigate risks associated with wallet providers but added that it may also apply its own requirements directly to a custodian, if necessary.
- HM Treasury announced last week that it plans to introduce phased crypto regulation in the country, starting with rules related to fiat-backed stablecoins in early 2024.
- Custodial wallet providers may be directly regulated by the BOE if they provide custody services for most of the systemic payment stablecoins in circulation, or provide these services to multiple payment systems.
- The bank is seeking feedback for the proposed regulatory regime until Feb. 6, 2024, before consulting on the final set of rules by mid-2024 with the FCA. The final regulations are set to go into effect by 2025.
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