Leaders in the UK’s crypto and digital asset sector have raised some proposals regarding the Bank of England (BoE) and the Financial Conduct Authority’s (FCA) draft report on the regulation of stablecoins.
Whilst companies have acknowledged that the BoE and FCA’s proposals do provide some good beneficial points to the sector, there remains a plethora of aspects to the report that entities believe should be reworked.
One of the leading crypto groups, CryptoUK, stated that whilst the points outlined are still very much in the preliminary phase, the organisation would like to see a “same risk, same regulation” approach to that traditional finance firms face.
CryptoUK said: “We would stress our desire to see the FCA take a ‘same risk, same regulation’ approach, i.e. where a digital asset firm faces the same type and level of risk as a traditional finance firm, the level of regulation should be equivalent and should not be any more onerous than that which applies to the traditional finance sector.
“This approach is based on the principle of technology neutrality. We acknowledge that there are of course differences between digital asset firms and traditional finance firms, and agree that any framework cannot be operated on a ‘copy-and-paste’ approach.
“Instead, the proposed framework should be closely reviewed to ensure that it is fit for purpose and tailored to be appropriate for stablecoins and the digital ecosystem generally.”
The BoE and FCA released its report on the regulation of stablecoins last November, outlining key elements such as overseeing the activity of “systemic stablecoins” to maintain financial stability”.
A key focus for both UK parties in how stablecoins should be regulated largely relates to a payment-focused aspect, with the fiat-backed digital currencies gaining momentum over the past several months through various private companies, such as PayPal, issuing their own native stablecoin.
The BoE intends to peg the UK’s stablecoin offering with GBP and is considering limits on stablecoin holdings if the timeline maintains for its regulatory introduction next year.
Despite the BoE and FCA outlining a focus on the payments aspect of stablecoins and its function within the overall UK financial system, CryptoUK highlights that the FCA should work on building its own framework that does not intrude on innovation and growth.
The statement continued: “We have identified a number of areas where there may be a risk of jurisdictional fragmentation. The FCA should consider, and build into its own framework, the approach taken in other jurisdictions. Further to this point, we would highlight that any requirements set by the FCA should not restrict the competitiveness of the proposed regime.
“In terms of backing assets for example, we would contrast the proposed regime with the approach taken in Singapore, which recognises and allows a range of currency-backed stablecoins to be used.”
Other key talking points, such as wholesale purposes and type of costs, CryptoUK to an extent agreed upon, but expressed their opinions on how embedding stablecoins into British society should be seamlessly integrated.
On the wholesale and retail side of stablecoins, CryptoUK proposed specific obligations when it pertains to consumer protection and regulating the activity of stablecoins, and not the stablecoin itself.
The UK organisation then stated that they believe further consideration should be applied to the potential creation or increase in hidden costs that come as part of more stringent compliance and regulation.
CryptoUK said: “We believe that the cost assessment should factor in the choices that smaller or more niche operators may need to take, due to the impact on bottom-line revenues that the regime may cause.
“In particular, our concern is that there is a high risk of businesses choosing to limit their specific market operations or target customer groups, or move compliance and/or operational functions to large organisations where these costs are more easily absorbed due to scale.”
The BoE and the FCA will consult with one another on the final terms and regulations on stablecoin issuance by the midpoint of 2024, with possible issuance landing in 2025.