The Bank of England Discusses Regulatory Framework for Stablecoins
The Bank of England has stated in a discussion paper that stablecoins currently circulating in the market are not considered to have “systemic importance.” However, the bank acknowledges that this may change if pound-based stablecoins become widely used in the UK. To address this potential scenario, the paper outlines a potential regulatory framework.
Concerns about Unhosted Wallets
The discussion paper raises concerns about the use of “unhosted” crypto wallets and their potential for facilitating money laundering and terrorist financing. Unhosted wallets allow users to store and transfer crypto assets without a third-party intermediary. The paper highlights that if stablecoins were to operate at scale, wallet providers would need to adhere to regulatory requirements similar to traditional payment systems.
Money Laundering and Terrorist Financing Risks
The Bank of England acknowledges that the risks of money laundering and terrorist financing associated with unhosted wallets are already covered under recommendations by the Financial Action Task Force (FATF). The introduction of a “travel rule” for cryptocurrency transactions is one such recommendation, requiring relevant information about both the sender and recipient to be shared during virtual asset transactions.
Shaping the UK’s Regulatory Framework
The release of this discussion paper marks the initial exploration phase in shaping the UK’s regulatory framework for stablecoins. The Bank of England plans to gather feedback from the industry on these proposals before engaging in a consultation process for its final regulatory framework. The paper is published alongside related papers from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), providing clarity on regulatory categories for different forms of money and money-like instruments.
Hot Take: Potential Implications for Stablecoin Regulation
The Bank of England’s discussion paper highlights the need for a regulatory framework for stablecoins, particularly if they gain widespread use in the UK. Concerns about unhosted wallets and their potential for facilitating illicit activities are emphasized. By addressing these concerns and ensuring compliance with regulatory requirements, stablecoin issuers can enhance the integrity and reliability of their payment systems. The coordinated approach with other regulatory bodies demonstrates the commitment to provide clarity and establish appropriate regulations for stablecoins in the UK.
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