The Bank of England yesterday announced it would intervene to direct and oversee collapsing stablecoins should the British central bank decide that a stablecoin issuer “has reached systemic scale fail [sic].”
The news came via a document prepared by the HM Treasury in response to a cryptocurrency consultation that began in January 2021 and concluded in April this year.
The British government proposes to amend the UK’s Financial Market Infrastructure Special Administration Regime to bring crypto within the jurisdiction of the British central bank while giving the institution the reins in the event of a collapsing stablecoin.
One proposed amendment also includes broadening the legal definition of a “payment system” to include crypto, providing the central bank with regulatory powers under Part 5 of the 2009 Banking Act.
The government clarified that the central bank will only step in during “systemic” collapses, which it defines as any “deficiencies in [a system’s] design or disruption to its operation may threaten the stability of the UK financial system or have significant consequences for businesses or other interests.”
The exact powers given to the central bank under the amended Special Administration Regime are largely unclear, though the document mentions “direction” and “oversight” and provides an example: “[The Bank of England] must approve the administrator’s proposals from the outset (and on a continuous basis) and has powers to direct the administrator to take or refrain from taking specified actions.”
The central bank will be required to consult the Financial Conduct Authority (FCA) before requesting a special administration order.
The UK and Crypto
Like the United States, the British government has so far taken a largely hands-off approach to cryptocurrencies, but the market’s undeniable growth since the 2021 bull run has gradually introduced the topic of regulation into Britain’s political conversation.
In April 2021, The Bank of England and HM Treasury launched a CBDC task force to explore the prospect of a central bank-issued digital currency (CBDC). A CBDC is essentially a state-issued stablecoin, so in the Bank of England’s case, the CBDC would be a digital sterling.
Around 100 countries are currently exploring CBDCs, according to Kristalina Georgieva, managing director at the IMF.
In April 2022, the British government also announced plans to become a “crypto asset technology hub.”
So far, Westminster has taken baby steps to this end, but has confirmed that stablecoins will be “brought within regulation” so as to have them used “in the UK as a recognized form of payment.”
The government will issue an NFT this summer in collaboration with the Royal Mint too.
Last month Sarah Pritchard, the executive director of FCA told Bloomberg that British crypto regulations will need to take into account Terra’s historic stablecoin collapse.
"Innovation lasts if it works well, and clearly, we've seen the consequences and some of the issues that can arise," she said.