Bank of England Proposes Rules for Systemic Stablecoins

The Bank of England published a consultation paper proposing a regulatory regime for sterling-denominated systemic stablecoins. This represents a significant shift in how the UK oversees stablecoin issuers and enhances market transparency.

Sarah Breeden, Deputy Governor for Financial Stability, spearheaded these proposals. The framework aims to support innovation and trust while involving both BoE and FCA for oversight. The regime is crucial for payments clarity.

"Today’s proposals mark a pivotal step towards implementing the UK’s stablecoin regime next year. Our objective remains to support innovation and build trust in this emerging form of money. We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England. These proposals are fit for a future where stablecoins play a meaningful role in payments, giving the industry the clarity it needs to plan with confidence." — Sarah Breeden, Deputy Governor for Financial Stability, source

The proposals set a £20,000 holding limit to avoid significant outflows from banks to stablecoins and require stablecoin issuers to back assets with UK government gilts. These measures aim to stabilize the financial market.

The regulatory clarity is expected to encourage large payment firms to enter the market. This could drive new investment and enhance consumer trust in stablecoin-based transactions, influencing the broader digital economy.

This regulatory step draws from past stablecoin failures, like TerraUSD in 2022, which were mainly crypto-native tokens. The focus now shifts to building a safe ecosystem for fiat-backed payment-system stablecoins.

Experts suggest these guidelines may prompt other major stablecoin issuers to pursue systemic status. Future compliance and adherence to these standards could gradually reshape the global stablecoin landscape.