Bank of England to receive expanded powers for stablecoin and digital payment oversight
Britain is preparing to broaden the Bank of England's responsibilities to encourage innovation in digital payment technologies, including stablecoins, without compromising financial stability.
Britain is advancing plans to position stablecoins as a central component of an expanded Bank of England mandate designed to foster innovation in the digital payments sector.
The UK government intends to assign the Bank of England, which serves as the nation's central bank, an additional objective focused on promoting innovation in both payment systems and emerging digital money formats, as HM Treasury revealed on Thursday.
This mandate will encompass payment systems utilizing digital settlement assets like stablecoins, though the BoE's core focus on financial stability will continue to take precedence.
The initiative arrives as Britain accelerates its stablecoin-related activities via regulatory reforms, payment testing programs and enhanced collaboration with the United States.
BoE innovation mandate faces September debate
This new obligation would build upon an established framework currently employed for overseeing central counterparties (CCPs) and central securities depositories (CSDs), entities that facilitate clearing, custody and settlement of financial assets.
According to the proposed modification, the central bank would be required to submit annual reports to Parliament detailing its achievements in advancing the payments innovation objective.
Developments in digital payments technology, including tokenisation and DLT [distributed ledger technology], have the potential to transform financial markets across the globe.
City Minister Lucy Rigby
The government anticipates introducing the objective via amendments to the Financial Services and Markets Bill, with additional debate sessions planned in the House of Lords on Sept. 7 and 9.
Stablecoin rules still face industry concerns
The effectiveness of the new mandate could hinge on the BoE's utilization of its annual reporting obligation, according to Maksym Sakharov, co-founder and CEO of on-chain banking infrastructure provider WeFi, in comments to Cointelegraph.
The objective is secondary to financial stability, so it overrides nothing, but the bank will have to publish an annual account of its innovation efforts in payments and digital money.
Maksym Sakharov
This obligation may subject the central bank's stablecoin regulations, which were finalized in June, to heightened public oversight.
Sakharov highlighted the mandates requiring systemic stablecoin issuers to maintain a minimum of 30% of their reserve assets in non-interest-bearing deposits held at the central bank.
"The reserve split is the first thing to fix," he said, adding that the requirement could determine whether a stablecoin business is commercially viable.
UK steps up stablecoin push
This new mandate comes amid growing UK initiatives centered on stablecoins, which are crypto assets engineered to preserve a stable value by pegging to assets like the US dollar.
In August, a group participating in the Bank of England's Digital Pound Lab began testing whether a stablecoin and a simulated digital British pound could work together in a cross-border trade payment. The experimental platform does not use real customers or money.
In mid-July, the UK and US published a joint statement on stablecoins, with the governments saying they "intend to enable the use of stablecoins in cross-border finance" and calling for greater alignment of their regulatory frameworks.
BoE also previously dropped plans to limit stablecoin holdings to 20,000 British pounds for individuals and 10 million pounds for businesses, replacing them with a temporary 40 billion pound ($52.9 billion) issuance cap for each systemic stablecoin.