By Phoebe Seers LONDON (Reuters) -The Bank of England on Monday proposed that issuers of widely used stablecoins be allowed to invest up to 60% of the assets backing them in government debt, part of a raft of new rules that suggest a softening in its approach to the sector. In its latest proposal for […]
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Bank of England softens stablecoin stance with new proposals
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By Phoebe Seers
LONDON (Reuters) -The Bank of England on Monday proposed that issuers of widely used stablecoins be allowed to invest up to 60% of the assets backing them in government debt, part of a raft of new rules that suggest a softening in its approach to the sector.
In its latest proposal for rules expected next year, the central bank however stuck to plans to cap the amount of stablecoins that individuals and businesses can hold, a move that sets it apart from European Union and U.S. regulators.
Stablecoins are digital tokens designed to keep a constant value that are often pegged to fiat currency and backed by traditional assets such as government debt. The sector is booming, aided by the U.S. agreeing federal rules earlier this year.
The crypto industry had sharply criticised a 2023 BoE proposal to force issuers to hold all of their assets in non interest-bearing accounts with the central bank.
The move, it said, would effectively preclude widespread UK adoption of stablecoins, which typically generate profits by investing assets.
The BoE has now instead suggested 40% of the assets would need to be held with it.
‘WE’VE LISTENED CAREFULLY TO FEEDBACK’
“Today’s proposals mark a pivotal step towards implementing the UK’s stablecoin regime next year,” said Sarah Breeden, the BoE’s deputy governor for financial stability.
“We’ve listened carefully to feedback and amended our proposals for achieving this, including on how stablecoin issuers interact with the Bank of England.”
The BoE, which plans to oversee only stablecoins deemed capable of becoming widely used for payments, also outlined a temporary regime for issuers previously under the Financial Conduct Authority, allowing them initially to invest up to 95% of backing assets.
The central bank has however retained plans that are unpopular with the crypto sector to cap stablecoin holdings, proposing limits of 20,000 pounds ($26,842) for individuals and 10 million pounds for businesses.
Larger businesses, such as supermarkets or trading platforms, could apply for exemptions, the BoE said.
The BoE has stressed that these caps are intended to be temporary and will be lifted once any financial stability worries have eased.
In a new proposal, the BoE said it was also considering offering central bank liquidity facilities to systemic stablecoin issuers during periods of market stress, providing a backstop if they are unable to sell their reserve assets in the private market.
Stablecoins used as assets for non-systemic purposes, such as buying and selling crypto tokens, would fall outside the BoE’s regime and instead be overseen by the FCA.
The consultation runs until February 10.
MORE CLARITY STILL NEEDED, CRYPTO EXECUTIVE SAYS
While regulatory clarity was welcomed by the crypto sector, some said the BoE could have gone further.
Tom Duff Gordon, vice president of international policy at cryptocurrency exchange Coinbase, said the bank could have allowed up to 80% of assets to be invested in high-quality liquid assets like government bonds.
“The industry (also) needs more clarity on when, and on what basis, these caps could be lifted,” he added.
($1 = 0.7451 pounds)
(Reporting by Phoebe Seers; Editing by Tommy Reggiori Wilkes and Jan Harvey)