- The Bank of England is re-examining its approach to stablecoin regulation based on recent industry feedback and international developments.
- Deputy Governor Sarah Breeden stated that rules may change to allow issuers of major stablecoins to earn interest, and to distinguish between different uses of stablecoins.
- Decisions on new regulations will be made by UK authorities, with technical details to be set by the Bank of England and the Financial Conduct Authority (FCA).
Earlier this week, Sarah Breeden, Deputy Governor of the Bank of England, addressed future UK regulation of stablecoins during a speech at the Point Zero Forum. The remarks come as the UK weighs adjustments to its original 2023 proposals in response to a changing global landscape and industry responses.
According to Breeden’s speech, the Bank of England is considering allowing some stablecoin issuers to earn interest. There may also be regulatory differences for payment-focused stablecoins compared to those used for investing or for other purposes. In 2023, the UK introduced rules that treated major (“systemic”) stablecoins separately from smaller ones, but current thinking may move away from this strict separation.
The initial proposal required systemic stablecoins—those with the potential to impact the wider financial system—to be backed by central bank money, ensuring high safety and straightforward exchange with standard currency. However, these issuers would not have been able to earn interest, which, according to Breeden, could threaten their business models. Non-systemic stablecoins, which are less likely to affect broader financial stability, were to be overseen by the Financial Conduct Authority (FCA) and would be allowed to generate returns on their reserve assets, which typically include short-term government bonds or commercial bank deposits.
During her address, Breeden pointed out that the UK’s regulatory plans differ from new laws passed in other countries, emphasizing that feedback showed a need to rethink the model to keep the UK competitive. She explained the importance of focusing regulation on stablecoins used primarily for payments, while recognizing that some stablecoins play a larger role as investment vehicles or as part of the cryptocurrency ecosystem. “We need to be mindful of what that glidepath means for stablecoin business models,” Breeden said, referencing the risk of a sudden change in treatment as a stablecoin becomes systemic.
Breeden also touched on the concept of a regulatory “Sandbox”—a test environment for new technologies—as a potential tool for guiding stablecoin development. This could help fintech firms and regulators explore issues like how different forms of money interoperate and what business models could work for stablecoin providers.
These potential regulatory adjustments come as HM Treasury released a draft of crypto regulations, outlining that only stablecoin issuers based in the UK would be included under the local rules. Detailed regulatory procedures will ultimately be set by the Bank of England and the FCA, according to official statements.
For further reading about the Bank of England speech, see the official transcript here.
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