The Bank of England and the Financial Conduct Authority (FCA) have jointly published a proposal to regulate a stablecoin pegged to the value of the British pound.
Under the proposed rules, providers of wallets – digital cryptoasset storage – would be required to always allow withdrawals of the stablecoin at the value of the pound.
Stablecoins are a form of cryptoasset that has a value tied to the value of an existing asset, often a fiat currency. The proposed requirement would protect the UK stablecoin’s value from dropping below the value of sterling, avoiding a price crash similar to when the dollar-pegged TerraUSD coin dropped below $1 last year.
The proposal also required that issuers of the coin back it with deposits at the centralised Bank of England, as opposed to a commercial bank.
“Stablecoins can enhance digital retail payments in the UK. With this comes the need to make sure there is robust and clear regulation in place,” said Sarah Breeden, deputy governor for financial stability at the Bank of England.
“Our proposals aim to support safe innovation so that firms can understand the risks they need to manage and ensure that the public can be confident in all forms of digital money and payments.”
The Bank of England and the FCA are calling for responses from the public and the crypto industry by February 2024.
“Getting views from others is essential for creating proportionate rules that benefit consumers and firms and also meet our objectives,” said Sheldon Mills, executive director, consumers and competition at the FCA.
“We look forward to continuing our engagement with government, our partners and the wider crypto industry as we move forward with the Government’s first phase in developing the UK’s crypto regulation regime and beyond.”
CryptoUK, the British industry body for cryptoassets said it welcomed the proposal and it plans to form a “working group to provide a unified response from the industry” and “key stakeholders”.
Nisha Sanghani, a partner at Ashurst Risk Advisory, told UKTN that the importance of safety in regulating cryptoassets “should not be underestimated given the ecosystem will include entities providing services to these payment systems, such as stablecoin issuers and wallet providers”.
The first proposals for a digital pound came last April, when Rishi Sunak – then serving as chancellor under Boris Johnson – declared his ambition to make the UK a “global cryptoasset technology hub”.
Progress from the Bank of England on implementing it has been slow, with the consultation process set back by delays.