The UK must not delay on introducing regulations on stablecoin technology, according to a new report from members of the House of Lords.
The cross-party Financial Services Regulation Committee on Wednesday published the findings of its research into introducing stablecoins as an approved element of the British economy.
It has determined that a sterling-backed stablecoin could bring significant benefits, including faster and cheaper payments options, greater settlement efficiency and opening the door to greater innovations such as programmable payments.
The committee has, however, also stated that there are considerable risks associated with the technology, a form of cryptoasset the value of which is pegged to a traditional asset, in this case the British pound.
It has warned that removing regulated firms such as banks as intermediaries in payments could create issues for the sector, for consumer protection and allow greater opportunities for bad actors to use stablecoins for illicit purposes.
Nonetheless the committee has stated that the robust and mature nature of British financial services could position the UK as a global leader in the technology if it were done correctly.
Therefore, it has recommended the introduction of regulatory frameworks that can be “sufficiently flexible to allow for future use cases for stablecoins” and a deeper understanding from regulators about the associated risks.
It called for the Bank of England (BoE) to reconsider its position that 40% of the assets used to back the value of stablecoin tokens be held as BoE deposits to prevent harsh and impractical limits to growth.
“The global stablecoin market is dominated by US dollar stablecoins and evolved to serve cryptoasset trading,” said Baroness Noakes DBE, chairman of the House of Lords Financial Services Regulation Committee.
“New uses for stablecoins are emerging and regulators globally are setting up regulatory regimes. The UK is lagging behind compared with the US and the EU but is now moving in the right direction.
“The committee support much of what the Bank of England and Financial Conduct Authority are proposing. There are, however, elements of the proposals which should be reconsidered, particularly in relation to holding limits, unremunerated backing assets, and restrictions on commercial banks issuing stablecoins.”
