UK Heeds Calls To Soften Stablecoin Cap And Reserve Requirements - Blockzeit
The BoE removed the stablecoin caps per user and relaxed the reserve requirements of issuers in response to public pressure. The Bank of England (BoE)releaseda new policy paper on the draft Code of Practice. . .
The BoE removed the stablecoin caps per user and relaxed the reserve requirements of issuers in response to public pressure. The Bank of England (BoE)releaseda new policy paper on the draft Code of Practice focusing on the regulation of sterling-denominated systemic stablecoins. The proposal seeks to update the Financial Services and Markets Act (FSMA) 2023 to establish a comprehensive framework for the issuance and ownership of these digital assets pegged 1:1 to fiat currencies. The revisions published on Monday were a response to public backlash and warnings from lawmakers about its previous strict stance on stablecoins, which they believe could hinder market innovation and curtail financial freedom. Systemic StablecoinsThe BoE uses the term “systemic stablecoins” toreferto large-scale digital settlement assets widely used for retail payments. The UK’s central bank and the Financial Conduct Authority (FCA) jointly govern these assets. Alongside these are “non-systemic stablecoins,” which are regulated solely by the FCA. Individuals and institutions primarily utilize these assets for crypto trading, cross-border payments, and niche settlements. No More Caps on Individual HoldingsMembers of the crypto community earlier slammed the BoE’s plan to cap stablecoin holdings. Initially, the central bank proposed a £20,000 ($26,480 based on prevailing exchange rates) limit per individual. Meanwhile, a business can own only up to £10 million ($13. 24 million) worth of these assets. The BoE removed the stablecoin holding restrictions for retail and business users in its new proposal. However, it has decided to enforce total issuance limits for these virtual assets, applying an initial cap of £40 billion per stablecoin. The UK’s central bank explained that the move demonstrates it listens to public feedback. Additionally, it highlighted that the adjustment was simpler to implement, supports a wide set of use cases, and gives way for viable business models. Despite caving in to public pressure, it emphasized that its policy outcomes remain unchanged, and its key priorities focus on preserving trust in monetary and financial stability. Backing Reserve AssetsAnother revision centered on softer backing requirements. If approved, it will raise the interest-earning share of stablecoin reserves to 70% by investing in short-term government debt while also allowing reverse repos (repurchase agreements). The remaining 30% will be maintained as unremunerated BoE deposits, since stablecoins are not a store of value and are not involved in monetary policy transmission. The BoE claimed that the reconfiguration of the reserve mechanics is consistent with historical liquidity risk events. On the other hand, the BoE prohibited stablecoin issuers from making commercial bank deposits to avoid financial and operational risks, including potential contagion risks between stablecoins and the financial sector. Furthermore, it reiterated its stance that stablecoins should not offer yields to prevent capital flight from bank deposits to crypto, mirroring concerns of the US banking industry in the related provisions in the pendingCLARITY Act. What’s your Reaction?+11+10+10+10+10+10+10Giancarlo PerlasGiancarlo is an economist by profession with a career spanning nearly two decades. His professional journey has seen him assume vital roles in various government and private organizations such as the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), Megaworld Corporation, and the China Banking Corporation in the Republic of the Philippines. In addition to his civic and corporate pursuits, his forward-thinking approach has led him to manage several prominent websites in the banking and finance sector, notably the Australia-based RateChoice, where he immersed himself in the world of emerging financial technologies and where he found particular interest in Bitcoin all the way back to 2013. Prior to his addition to Blockzeit’s dynamic team, he held an essential role as Project Manager for initiatives encompassing blockchain, tokenization, stablecoin, mining, special economic zone development, and iGaming. This noteworthy chapter in his career unfolded under the auspices of InPlan Consultancy Services, Inc. , the think-tank of IMPERO Consortium Management Corporation headquartered in Manila, Philippines, and Tokyo, Japan. InPlan, led by a distinguished retired Cabinet member of the Philippines, collaborates directly with IMPERO's core management team, contributing to strategic planning and business development endeavors.