Bank of England’s Breeden warns watered-down stablecoin rules risk stability
The Bank of England (BOE) has proposed stricter stablecoin regulations compared to the US, sparking criticism from the crypto industry. The BOE's proposed measures include limiting individual and company stablecoin holdings, requiring issuers to back 40% of assets with the BOE, and regulating stablecoins used for payments. Deputy Governor Sarah Breeden believes these restrictions will reduce risks to financial stability and potential credit crunches. These regulations follow earlier discussions between the UK and US to coordinate on crypto and stablecoin activities. The BOE aims to finalize its regulatory framework next year, balancing innovation and consumer protection.
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Financial Risks of Weaker Stablecoin Rules in the UK
Weaker stablecoin rules in the UK could pose risks to financial stability and potentially trigger a credit crunch, according to the Bank of England's deputy governor, Sarah Breeden. She stated: “We have a different set of risks to manage as we transition to bringing in this new form of money”. Breeden shared her insights with Reuters on Tuesday, emphasizing the challenges of regulating this emerging sector. Last week, she expressed confidence that the UK could keep pace with the US on stablecoin regulation.
Criticism of BOE’s Stablecoin Regulation Proposal
The crypto industry leaders criticized the BOE’s consultation paper on stablecoin regulation, which was released on Monday. This paper proposed a relatively strict stance compared to the US. One major point of contention was the BOE's decision to limit individual stablecoin holdings to £10,000 and company holdings to £10 million, a move that has sparked significant debate. Breeden argued this measure would “halve the stress” on banks caused by customers withdrawing bank deposits to acquire stablecoins. However, the timeline for lifting these measures remains unclear.
Stablecoins' Market Growth and International Cooperation
Stablecoins have grown into a $312 billion market by 2025, and countries worldwide are exploring regulatory frameworks to match this expansion. Earlier this year, US President Donald Trump signed the GENIUS Act, encouraging innovation while ensuring consumer protection. Coordinated efforts between UK Chancellor Rachel Reeves and US Treasury Secretary Scott Bessent in September strengthened collaboration on crypto and stablecoin activities, setting the stage for more aligned regulations.
40% Backing Rule for Stablecoin Issuers
The BOE proposed that stablecoin issuers be required to hold 40% of their backing assets with the BOE, without earning interest. Sarah Breeden supported this proposal, citing the Circle-SVB incident in March 2023 when $3.3 billion of USDC reserves became temporarily inaccessible due to the collapse of Silicon Valley Bank. This incident underscores the importance of robust safeguards for stablecoin reserves.
Future Plans for Stablecoin Regulation
The BOE is open to further feedback and aims to finalize its regulatory regime next year. The proposal includes plans to regulate stablecoins used for daily payments, while those involved in crypto trading would fall under the oversight of the Financial Conduct Authority (FCA).
Impacts on Stablecoin Adoption
In other news, Coinbase and UK-based stablecoin company BVNK have decided to part ways on a $2 billion deal. This deal could have significantly boosted stablecoin adoption in the UK. Industry observers view this as a missed opportunity to strengthen the UK's position in the global crypto market.