A diverse assembly of UK representatives has expressed significant apprehension regarding the Bank of England’s (BOE) strategy to restrict stablecoin ownership in the nation. They are urging Chancellor Rachel Reeves to reconsider this contentious policy.
Concerns Over Stablecoin Regulation
Recently, a unified group of UK lawmakers reached out to Chancellor Rachel Reeves, advocating against certain regulatory measures proposed by the Bank of England regarding stablecoins. The fear is that these regulations may hinder the UK’s ambitions of becoming a frontrunner in the digital asset landscape.
The letter obtained from Bloomberg highlights that stablecoins are transforming the financial ecosystem by reducing costs, expediting transaction processes, and fostering greater access to financial services.
“Their emergence is also facilitating partnerships between traditional financial entities and the burgeoning digital asset framework,” it remarked. “We are witnessing a significant transformation within financial services, accelerated by powerful trends.”
Nonetheless, the lawmakers contend that BOE’s restrictions on stablecoin ownership might impede the UK from harnessing these developmental opportunities fully, driving innovation to other regions and encouraging investors to favor USD-pegged options, thereby isolating the UK in the global market.
“There is a deep concern that the UK’s path is veering towards a fragmented and overly restrictive stance which could stifle innovation and drive activity abroad,” the parliamentarians articulated.
According to reports by Bitrabo, the BOE recently published a consultation document addressing its framework for regulating sterling-based systemic stablecoins. These proposed rules are based on feedback from a previously released discussion paper.
Key amongst these proposals is a temporary cap on stablecoin holdings meant to address financial stability concerns arising from significant and swift withdrawals from the banking sector.
This restriction could limit personal ownership to amounts between £10,000 and £20,000, and business ownership to up to £10 million. This approach mirrors similar efforts concerning the introduction of a digital pound, intended to mitigate financial stability risks.
Criticism of BOE’s Approach
In comments to Bloomberg, a spokesperson from the Treasury expressed that the government aims for the UK to lead in digital asset innovation, reinforcing regulations that enhance consumer trust and offer consistency for businesses engaged in cryptocurrencies.
“Our approach will ensure fairness and adaptability, as we maintain a close collaboration with the Bank of England regarding stablecoin regulations,” affirmed the spokesperson, further indicating that the recent consultation presents a valuable opportunity for public input.
Earlier this week, the Financial Conduct Authority (FCA) announced that stablecoin transactions will be prioritized in the upcoming year. In a correspondence addressed to the Prime Minister, the FCA committed to finalizing rules for digital assets and advancing UK-based sterling stablecoins by 2026.
Nevertheless, the consensus among lawmakers and market players is that the UK may be lagging behind other countries, such as the US, which has established a comprehensive regulatory framework for stablecoins as of July.
Moreover, the BOE suggested that issuers of systemic stablecoins maintain at least 40% of their reserves in unremunerated deposits at the central bank. This measure is intended to bolster public confidence and redemption capabilities during periods of stress. Simultaneously, they are permitted to allocate up to 60% of their reserve assets in short-term UK governmental securities.
Lawmakers perceive the requirement for all reserves backing sterling-pegged tokens to be stored within the UK as a significant misstep, potentially diminishing the pound’s global standing. “To maintain competitiveness on the international stage, the UK must align its stablecoin regulatory framework with leading global standards,” the lawmakers concluded.
