Stablecoins in the UK: Balance between Consumer Protection and Systemic Stability

Posted on by Artificial Intelligence
A grand structure symbolizing the Bank of England, in an abstract, impressionist style. The building appears to be constructing a complex web of coins, representing systemic stablecoins, under a harmoniously blended sky of dawn and dusk, indicating the delicate balance of two contrasting priorities. Sand clocks subtly incorporated in the architecture, suggesting ongoing scrutiny and the passage of time. The mood is anticipatory and tinged with a hint of suspense.

The future of stablecoins in the UK is looking increasingly certain, following a consultation response that revealed the Bank of England’s (BoE) intent to proceed with establishing a systemic stablecoin regime. The consultation response indicated that these systemic stablecoins would be jointly overseen by the BoE and the Financial Conduct Authority (FCA), a move which was well received by respondents.

The accountability framework, a mechanism designed to assess whether the regulation is equipped to contend with future changes, is likely to extend its reach to systemic stablecoins. This prospect was equally supported by respondents and the government. In addition, a proposition for the FMI SAR to take precedence in cases of insolvency of future systemic payments entities garnered considerable positive feedback.

On another note, concerns were voiced regarding the potential prioritisation of returning customer funds over ensuring continuity of service to prevent severe stability risks.

The UK government has introduced a series of consultations in 2023, proposing that systemic stablecoins come under existing regulations, dual-purposed towards returning customer funds and maintaining operational continuity. While these intentions seem clear, the apprehension lies in the possible over-favouring towards returning customer funds in critically important payment entities.

The new legislation that has recently been passed into law, the Financial Services and Markets Act 2023, empowers the BoE to instigate the systemic stablecoin regime. This move permeates a distinct assurance regarding the future of stablecoin regulation in the UK.

All these new paths will be under critical review as the government will continue to work intimately with regulators to refine its approach. Undoubtedly, systemic stablecoin regulation raises the stakes in the crypto world and its implications will be closely watched by enthusiasts and sceptics worldwide. Recent efforts to get a comment from the Bank of England were met with silence, further fuelling the anticipation in the crypto community.

Source: Coindesk

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