Benzinga - by Murtuza Merchant, Benzinga Staff Writer.
Financial regulators are scrutinizing stablecoins tied to the British pound, citing concerns about their potential impact on the stability of the financial system.
Authorities outlined their approach to managing risks associated with these digital assets, which would fall under the oversight of the Financial Conduct Authority (FCA). The announcement aligns with broader discussions on digital assets, like those anticipated at the upcoming Benzinga's Future of Digital Assets conference on Nov. 14.
The event is expected to address various facets of the digital currency landscape, which now includes the regulatory perspectives and actions of major financial institutions.
In a statement released by the Bank of England (BOE), it is indicated that the focus on pound-pegged stablecoins stems from their perceived likelihood of becoming widely adopted for payment purposes.
"The discussion paper represents an exploratory phase in developing the new regime. After receiving and considering feedback from the industry on these initial proposals, the Bank will consult on its final proposed regime," the BOE remarked.
The BOE is set to regulate these "systemic stablecoins" along with their issuers.
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These plans also reveal that new legislation concerning fiat-backed stablecoins is expected to be put forward at the beginning of the next year.
This regulatory initiative was further expanded upon in a separate discussion paper from the FCA and a letter from the Prudential Regulations Authority (PRA) addressed to deposit-taking entities.
The PRA highlighted the need for these institutions to shield themselves from potential "contagion" risks and emphasized that the protections that traditional deposit takers enjoy are not the same as those for users of stablecoins.
"Contagion risks will be lower for stablecoins used in systemic payment systems regulated by the Bank, than for e-money or other regulated stablecoins captured by the FCA’s regime," the PRA's letter detailed.
The FCA's discussion paper made it clear that stablecoin issuers will be required to obtain authorization before circulating fiat-backed stablecoins within or from the U.K., signifying a significant step towards the formal integration of stablecoins into the country's financial oversight framework.
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