The draft stablecoin regulatory framework published by the Bank of England (BOE) incorporated feedback from the cryptocurrency industry during its drafting process, but some observers still believe the draft's restrictions on the industry are too stringent. This document was announced on November 10, almost two years after the Bank of England first released a discussion paper on the topic. The original paper outlined a development blueprint for the UK's cryptocurrency ecosystem. However, many in the industry are concerned that the regulations will stifle the growth of the local digital asset industry. The Bank of England stated that it received feedback from 46 different stakeholders, including banks, non-bank payment service providers, payment system operators, industry associations, academia, and individuals from diverse groups. The Bank of England may have removed some of the more stringent requirements, but some industry insiders believe it is still not enough. Tom Rhodes, the legal counsel of UK stablecoin issuer Agant, stated that the Bank of England remains too cautious and restrictive.
The Bank of England remains cautious about stablecoins.
Lodz stated that the new version has undergone several modifications based on the 2023 version, and the latest proposal does indeed contain some innovative features, such as the Bank of England having direct liquidity quotas and the ability to repurchase reserves for liquidity purposes. He indicated that these proposals could be further explored for the UK market to establish a more competitive asset support system without compromising stablecoin attributes, but Lodz pointed out that despite the Bank of England's improved attitude toward stablecoins, the central bank has expressed exceptionally strong concerns about the risks associated with stablecoins. One of the most controversial restrictions in the document is the limitation on the so-called 'systemic retail stablecoins' by the Bank of England. The document defines stablecoins as those widely used by individuals for daily payments, such as shopping and receiving wages.
The Bank of England sets the personal holding limit for stablecoins at £20,000.
The Bank of England wants to set the personal holding limit for stablecoins at £20,000 and the corporate holding limit at £10 million. This is an increase from the initial proposal, but the idea of limiting the amount of cryptocurrency individuals can hold has not been accepted by everyone. Cryptocurrency influencer Aleksandra Huk stated that the Bank of England wants to limit stablecoin holdings to £20,000, but who gives them the power to tell everyone what to buy, where to keep their money, and how much to hold?
The development of cryptocurrency in the UK is taking a gradual approach.
This proposed rule also has some restrictions. Geoff Richards, the community leader of Ontology Network, pointed out that the proposal only applies to GBP-denominated stablecoins used in the UK payment system that could become systemic currencies. It excludes USDT, USDC, or any other DeFi tokens.
Ian Taylor, a board member of the cryptocurrency advocacy group Crypto UK, told Cointelegraph that he understands the central bank's more cautious approach, at least regarding the stablecoin limits, as the Bank of England's responsibility is to maintain financial stability. Financial stability is closely related to the banking system. Banks absorb deposits and use those deposits as collateral to issue loans, thereby creating credit, which is an economic benefit for any economy. The Bank of England is concerned that withdrawing deposits from banks would reduce lending capacity, thereby affecting financial stability, which is a valid concern. Therefore, this is why they want to proceed gradually.
Lodz stated that the vast majority of stablecoins in the UK will not be regulated anyway, at least not in the manner described in the document. He pointed out that Mastercard was not recognized as a systemically important payment system until 2021, and non-systemically important stablecoins will be regulated under the Financial Conduct Authority (FCA) rules, which have fewer restrictions.
The UK still needs a more comprehensive regulatory framework for stablecoins.
The ability for stablecoin issuers to obtain central bank liquidity and open deposit accounts at the Bank of England is undoubtedly a welcome development. However, representatives of the cryptocurrency industry believe that there is still room for improvement in the central bank's plans. Regarding the stablecoin limit, Lodz stated that the threshold for systemic importance remains uncertain. It would be helpful if the UK Treasury could clarify when the issuer's scale reaches a level that poses a risk to the UK economy as a whole before designating them as systemically important.
Taylor also pointed out that enforcing these stablecoin limits is challenging. If the government permits issuing organizations, then the government must monitor the amount of stablecoins each customer, whether wholesale, corporate, or retail, can obtain. The problem is that many people acquire stablecoins through secondary markets or various different channels. People may receive stablecoins as compensation at work or in exchanges or peer-to-peer transactions. Therefore, the actual execution remains questionable, and there are no relevant details.
The UK is developing stablecoins slowly and cautiously.
Arvin Abraham, a partner at Goodwin Procter, stated that overall, clarity and speed would make the UK stablecoin ecosystem more competitive. He told Cointelegraph that regulators need to provide issuers with clear processes and predictable timelines to smoothly complete the approval process. However, speed is not the government’s strong suit. Since 2017, the UK government has been formulating cryptocurrency regulatory policies, when it first implemented anti-money laundering and know-your-customer (KYC) requirements for cryptocurrency-related businesses such as exchanges. Now, eight years later, the central bank is still formulating policies based on industry feedback. Slow progress is a problem.
Taylor explained that there are many reasons for the slow development in the UK, including frequent changes in government and a lack of true supporters among all key stakeholders, whether in the current government, the Treasury, or the Financial Conduct Authority (FCA). Taylor stated that UK authorities have been consulting on a broader regulatory framework for stablecoins for nearly five years, but no actual licensing framework has been established, which is a problem in many ways and unhelpful for businesses looking to issue stablecoins in the UK. They lack a clear roadmap, which in turn forces them to shift to jurisdictions where existing regulatory frameworks are already in place.
The progress of the UK in cryptocurrency regulation may be very slow, slower than many in the industry hope, but Abraham believes that the Bank of England is pragmatic and fair. Its core message is welcoming innovation, but if cryptocurrency is to operate like fiat currency, it requires fiat-level regulation.
This article, which argues that the new stablecoin regulations proposed by the Bank of England are overly strict, first appeared in Chain News ABMedia.
