The UK’s central bank, the Bank of England (BOE), has released a proposed regulatory regime for StableCoins. The consultation paper took into account the views of the crypto industry, but some observers said it remained restrictive.
Boe released the document on November 10 – some two years after it announced the initial discussion paper. The original offered a vision for crypto that many in the industry claimed would doom the UK’s digital asset space.
The BOE said it received comments and feedback from a wide range of 46 different stakeholders, including “banks, non-payment service providers, payment system operators, trade associations, academia, and individuals.”
The UK’s central bank may scrap some hardline requirements, but some in the industry believe it won’t go far enough. Tom Rhodes, Chief Legal Officer at UK-based StableCoin Issuer Agant, said the bank remains “incredibly cautious and restrictive.”
The Bank of England is still wary of StableCoins
The new iteration presents a number of improvements over the 2023 version, Rhodes told Cointelegraph.
“The latest proposals include several innovative features, such as Boe’s direct liquidity lines and the ability to repo reserves for liquidity purposes.”
He said that, as it relates to the UK market, “these proposals can be further explored and potentially expanded to create a more competitive asset backing regime, without compromising stability.”
But despite the “happy development in BoE’s sentiment toward StableCoins,” it was “unusually vocal about the perceived dangers of StableCoins,” Rhodes said.
One of the more controversial restrictions in the paper is the limits on what the BOE calls a “systematic retail StableCoin.” In the paper, it is defined as a stablecoin that is “widely used by individuals to make everyday payments such as for shopping and receiving salaries.”
The Central Bank wants to see limits of 20,000 pounds for individuals and 10 million pounds for businesses accepting it as a form of payment. It’s an increase from the initial proposal, but the idea of limits on how much crypto you can hold doesn’t sit well with some.
Crypto influencer Aleksandra Huk write“The Bank of England wants to cap StableCoin Holdings at £20,000. Who gave them the right to tell us what to buy, where to store our money and how much we can have? (…) Honestly, this is the best advert for privacy coins and leaving the UK.”
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There are some caveats to the proposed rule. Geoff Richards, community leader at Ontology Network, mentioned“The proposal only applies to sterling-denominated stableCoins used in UK payment systems that may be ‘systemic.’ Not USDT, not USDC, not a random defi token. “
Ian Taylor, board member of Crypto Industry Advocacy Group Cryptouk, told Cointelegraph that he understands the central bank’s more cautious approach, at least as it applies to StableCoin’s limitations:
“The Bank of England has a mandate to protect against financial stability. And financial stability is connected to the banking system. So there are less banks taking deposits and they issue loans against deposits (…) creates credit, it’s an economic benefit to any economy we have.”
The BOE is rightly concerned that taking deposits out of banks will reduce their ability to lend, affecting financial stability. “So, that’s why they want to baby step it.”
Rhodes said the “vast majority” of UK stablecoins would not fall under the regime anyway, although not as stated on paper. He noted that MasterCard will only be recognized as a systemically important payment system in 2021 and that non-systemic stablecoins will be regulated under Financial Conduct Authority (FCA) policy, “which is less restrictive.”
Still work to do as the UK opens up to crypto
Access to Central Bank Liquidity and Deposit Accounts at the BOE is a welcome update for StableCoin issuers. But representatives of the crypto industry believe there is still room for improvement in the central bank’s plan.
Regarding StableCoin caps, “systemic thresholds remain uncertain,” Rhodes said. He said it would be helpful to have clarification from Her Majesty’s Treasury when an issuer reaches a sufficient size to “pose a risk to the UK economy as a whole, before they identify the issuer as systemic.”
Taylor also mentioned the difficulty of implementing these StableCoin caps. If the government licenses an issuer, then they are “responsible for tracking with each individual client or customer, whether wholesale, corporate or retail, how many stablecoins they have given them.”
The problem is that many people get their stablecoins on the secondary market or a “host of different sources”. People can receive StableCoins as compensation for work or in an exchange or peer-to-peer exchange. “So, the actual operational implementation of my question, and we haven’t seen any details about it.”
Overall, “clarity and speed” will make the UK StableCoin ecosystem more competitive, said Arvin Abraham, partner at Goodwin Procter. He told Cointelegraph that regulators need to give issuers “a clean path and predictable timelines” to navigate the approval process.
Speed is not the government’s strong suit, however.
The British government has been working on crypto regulations since 2017, when it first adopted anti-money laundering and know your customer requirements for crypto-related businesses such as exchanges. Now, eight years later, the Central Bank is still developing its policies based on industry feedback.
The slow pace of development presents a problem. According to Taylor, “We’ve been consulting on a broader framework to regulate StableCoins for almost five years, and we still haven’t gotten any actual license framework in place, which is problematic for a number of reasons,” he said.
“It doesn’t help businesses that want to launch StableCoins in the UK. They don’t have a clear roadmap on how to do that,” he said, “which forces them to move offshore to jurisdictions where there are other regulatory frameworks in place.”
This is for a number of reasons, Taylor explained, including successive changes in government, as well as a lack of “real champions in any of our key stakeholders, be it the current government, be it the Treasury, be it the FCA.”
Progress in crypto regulations may be slow in the UK—slower than the industry would like—but for Abraham, “The bank is being pragmatic and fair. The overriding message is that change is welcome, but if you want your token to work like money, you need grade-level controls.”
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