Proposed Regulatory Framework for Systemic Stablecoins
The Bank of England (BOE) has unveiled a consultation paper outlining a proposed regulatory framework for systemic stablecoins, digital assets expected to be widely used for payments. This proposal aims to address potential risks to financial stability while fostering responsible innovation in the digital asset space.
Holding Caps to Prevent Large-Scale Outflows
Under the proposed plan, the BOE would impose temporary holding caps of £20,000 for individuals and £10 million for businesses. These limits are specifically designed to prevent large-scale outflows from traditional banks into stablecoins. Deputy Governor Sarah Breeden stated that these limits reflect the UK’s reliance on a bank-dependent mortgage market. She further explained that these caps would be lifted once regulators determine that the risk to financial stability has subsided.
Reserve Requirements for Systemic Stablecoins
The consultation also proposes specific reserve requirements for systemic stablecoins. It suggests that these stablecoins hold 40% of their reserves in unremunerated deposits at the BOE. The remaining 60% would be held in short-term UK government bonds. This structure is designed to maintain strong liquidity while ensuring that issuers have direct exposure to safe assets, thereby enhancing the stability of the stablecoin ecosystem.
Industry Pushback and Concerns
The proposed plan has already drawn pushback from the crypto industry. Critics argue that the proposed caps could stifle innovation within the sector, potentially weaken the UK's competitiveness in the global digital asset market, and prove difficult to enforce for non-exempt traders and retail participants. Some large crypto exchanges and institutional investors are expected to receive exemptions from these caps.
Regulatory Oversight and International Alignment
The Financial Conduct Authority (FCA) will oversee non-systemic stablecoins under the broader digital asset regime. In contrast, the BOE will focus its efforts on those stablecoins considered vital to the UK’s payments infrastructure. London’s proactive approach aligns with the government’s commitment to keep pace with U.S. regulation, as both jurisdictions race to define clear frameworks for stablecoin adoption and usage in mainstream finance.