Bank of England to gain more regulatory power over stablecoins.
Bank of England to gain more regulatory power over stablecoins.
The Rise of Blockchain Technology: Empowering Financial Institutions
Blockchain technology has emerged as a transformative force in the financial industry, revolutionizing the way transactions are conducted and recorded. In recent years, various governments have been closely following this disruptive technology, keen on harnessing its potential and mitigating associated risks. The United Kingdom government is taking a proactive approach, as evidenced by a 40-page consultation response published by His Majesty’s Treasury on August 7th, 2022.
Evolving Financial Stability Risks and the Need for Reform
The British government launched a consultation titled “Payments Regulation and the Systemic Perimeter” to solicit market proposals on reforming the Bank of England’s (BoE) payments perimeter. This move comes in response to the evolving landscape of financial stability risks, brought about by the dynamic nature of the financial sector.
Joint Supervision Over Stablecoins
The highlight of the consultation response is the government’s intention to establish joint supervision over “systemically important stablecoins” by both the BoE and the Financial Conduct Authority (FCA). Historically, stablecoins have garnered attention due to their potential impact on financial stability. By involving multiple regulatory bodies, the UK government aims to strike a balance between effective oversight and innovation.
While the BoE and the FCA would collaborate in supervising stablecoin providers, the BoE would hold the power to veto FCA actions against specific stablecoin providers. This shift in power tilts the regulatory landscape towards the central bank, bolstering its influence over the stability of the financial system. Additionally, the Prudential Regulation Authority would gain the ability to prevent the FCA from taking certain actions that could potentially jeopardize financial stability.
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Clarifying the Limitations
The consultation response highlights that most respondents acknowledge the importance of granting the BoE primacy in supervising future systemically recognized payment entities. However, some stakeholders have requested clarification on the limitations of its power. This request emphasizes the need for transparent guidelines to enable effective regulation and to avoid overreach by the central bank.
The Bank of England’s Perspective
The Governor of the Bank of England, Andrew Bailey, has expressed skepticism towards cryptocurrencies and stablecoins, arguing that they fail basic tests of singleness and settlement finality. Instead, Bailey advocates for the development of “enhanced digital money” that can better address the shortcomings of existing digital currencies. This perspective underscores the importance of regulatory frameworks that foster innovation while safeguarding financial stability.
Conclusion
As the global economy increasingly embraces digital transactions, blockchain technology continues to disrupt traditional financial systems. The United Kingdom’s consultation response reflects a strategic effort to strike a balance between regulatory oversight and fostering innovation in the realm of stablecoins. By empowering the Bank of England and involving multiple regulatory bodies, the UK government aims to mitigate risks associated with stablecoins while capitalizing on the transformative potential of blockchain technology.
The ongoing evolution of blockchain technology and its impact on financial systems is a captivating story that is continuously unfolding. Governments and financial institutions around the world are actively shaping the future of blockchain, recognizing its potential as a catalyst for positive change. As we move forward, it is essential to strike the right balance between regulation, innovation, and stability to harness the full potential of blockchain technology and shape a more secure and efficient financial landscape.
