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The Bank of England plans to regulate stablecoins that could pose a risk to the financial system.
The Financial Conduct Authority will be responsible for regulating stablecoin providers in the crypto sector.
Legislation for fiat-backed stablecoins will be introduced in the UK early next year.
The Bank of England has announced that it plans to regulate stablecoins that could potentially pose a risk to the financial system. In a discussion paper published today by FCA, the bank disclosed that it will oversee systemic stablecoins and their issuers, with the Financial Conduct Authority responsible for regulating stablecoin providers in the crypto sector. The U.K. government describes its aim to introduce legislation for fiat-backed stablecoins early next year.
FCA’s Plays Crucial Role
According to the UK government, the Financial Conduct Authority (FCA) will be responsible for regulating all cryptocurrency providers, including stablecoin issuers. New legislation to regulate fiat-backed stablecoins, which are pegged to traditional currencies like the US dollar or euro, is also expected to be introduced early next year.
Stablecoins have become increasingly popular in recent years as a way to transfer digital assets quickly and securely without the price volatility often associated with other cryptocurrencies like Bitcoin. However, concerns have been raised about the potential impact of stablecoins on financial stability, particularly if they become widely used as a means of payment or as a store of value.
Details of Discussion Paper
In its discussion paper, the Bank of England said that stablecoins could pose risks to financial stability if they “become popular with consumers” or if they are used for “large-scale payments or remittances.” The bank added that it plans to introduce specific regulations to address these risks, including requirements for stablecoin issuers to provide clarity about the assets backing their tokens.
The Bank of England is also considering a range of other measures, including minimum capital requirements for stablecoin issuers, stress-testing of stablecoin arrangements, and restrictions on the types of assets that can be used to back stablecoin tokens.
Overall, the Bank of England’s discussion paper highlights the growing recognition among regulators that stablecoins have the potential to transform the financial sector.
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