Financial Feud or Foresight? The UK's Tug of War Over Systemic Stablecoins

The United Kingdom is on the brink of reshuffling the power dynamics between two prominent financial bodies, the Bank of England (BoE) and the Financial Conduct Authority (FCA).

by Faruk Imamovic
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Financial Feud or Foresight? The UK's Tug of War Over Systemic Stablecoins

The United Kingdom is on the brink of reshuffling the power dynamics between two prominent financial bodies, the Bank of England (BoE) and the Financial Conduct Authority (FCA). A recent consultation response from His Majesty's Treasury suggests that the BoE might emerge with a stronger hand, signaling key shifts in the country's financial regulatory landscape.

Consultation on Payment Regulations

Launched in 2022, the British government initiated a consultation titled “Payments Regulation and the Systemic Perimeter”. This came as a response to the ever-evolving financial stability risks.

The consultation aimed to gather market proposals on potential reforms to the BoE's payments perimeter. One of the pivotal elements revealed in the final paper is the government’s intention to supervise "systemically important stablecoins".

In an intriguing move, this supervision would be a collaborative effort between the BoE and the FCA. But the realignment doesn’t end there.

The Implications for Financial Regulation

Though both entities would share supervisory duties, the BoE is proposed to have an upper hand.

Specifically, it would possess the authority to halt any actions the FCA might take towards a stablecoin provider. Furthermore, the Prudential Regulation Authority is also set to gain the power to prevent the FCA from taking certain actions, especially if they could result in financial stability concerns.

This proposal echoes sentiments in the consultation document where the majority of respondents recognized the BoE's pivotal role in supervising systemically important payment entities. But this didn't come without reservations.

Several respondents voiced their need for clearer boundaries, keen on understanding the extent of the BoE's overarching power. BoE Governor Andrew Bailey has also weighed in on the broader financial debate surrounding cryptocurrencies.

In July, he opined that both cryptocurrencies and stablecoins did not meet the basic criteria of consistent value and settlement finality, asserting they should not be labelled as money. Bailey's solution? A pivot towards the development of what he terms “enhanced digital money”.

This ongoing dialogue and potential power rebalance highlights the UK government's proactive approach in adapting to the rapidly changing financial landscape. As digital assets and new payment methodologies gain traction, so too does the need for robust and adaptable regulatory structures.

Only time will tell how this will shape the future of finance in the UK, but one thing is clear: change is on the horizon.

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