Sterling stablecoins see review as BoE mulls 40% reserves

Key Takeaways:

• Bank of England signals openness to revising systemic stablecoin regulation, emphasizing resilience.
• Recalibration could reshape supervision and payment use, affecting issuers, payment firms, banks.
• Parliament launches inquiry assessing proportionality of Bank and FCA regimes, scrutinizing innovation tradeoffs.

The bank of England stablecoin rules may shift after officials signaled openness to revising proposals in response to industry feedback. According to Global Banking & Finance (https://www.globalbankingandfinance.com/bank-england-open-revising-stablecoin-rules-breeden/), Deputy Governor Sarah Breeden indicated the central bank is open to alternative approaches for regulating systemic stablecoins, while maintaining a focus on resilience.

The stakes are high because any recalibration could affect how systemic stablecoins are supervised and used in payments, with implications for issuers, payment firms, and banks. As noted by the House of Lords Financial Services Regulation Committee (https://committees.parliament.uk/committee/697/financial-services-regulation-committee/news/211615/financial-services-regulation-committee-launches-stablecoin-inquiry/), Parliament has launched an inquiry to test whether the Bank of England and FCA regimes are measured and proportionate, underscoring scrutiny of stability versus innovation.

As reported by Yahoo Finance (https://uk.finance.yahoo.com/news/bank-englands-breeden-says-diluting-154709522.html), the proposal includes transitional sterling stablecoin holding limits of £20,000 per individual and £10 million for businesses. The framework would also require 40% of reserves to be held as unremunerated deposits at the central bank, drawing lessons from recent banking and stablecoin stress events to reduce liquidity and credit risks.

Officials have signaled a willingness to refine mechanics without compromising core safeguards. “We are genuinely open to other ways of regulating systemic stablecoins,” said Sarah Breeden, Deputy Governor.

Industry groups argue parts of the design could hinder viable business models if left unchanged. As reported by CoinDesk (https://www.coindesk.com/policy/2024/02/09/uks-planned-stablecoin-rules-need-reworking-crypto-advocates-say), associations including CryptoUK, The Payments Association, and the Digital Pound Foundation say restrictive backing requirements limit returns and that sterling stablecoin holding limits could constrain usability.

Issuer perspectives highlight where flexibility may matter most in practice. According to Cointelegraph (https://cointelegraph.com/news/uk-central-bank-still-cautious-stablecoins/), Tom Rhodes of Agant welcomed potential access to central bank liquidity lines and the ability to repo reserves, but characterized the overall approach as disproportionately cautious, suggesting competitiveness could be improved without sacrificing safety.

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