Today the Bank of England and the Financial Conduct Authority (FCA) opened a consultation on multiple regulatory proposals for stablecoins. At the same time, the Bank of England’s Prudential Regulation Authority issued a notice to banks on the topic. It doesn’t want banks to get involved in stablecoins or e-money using their primary banking brand. The only way in which banks should use DLT for money is for tokenized deposits. Like the United States, the banking regulator also wants to be kept informed about planned digital money innovations.
A key driver of the bank restriction on stablecoins is the potential confusion for retail clients who might not understand the difference between a tokenized deposit backed by insurance versus an uninsured stablecoin. The concern is that if a stablecoin suffers a run, it could trigger a run on the entire bank. Hence, any stablecoin issuance by a banking group would have to use a separate non-deposit-taking brand and be insolvency remote.
“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, 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.”
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