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07-11-2023
LONDON: The Bank of England told lenders on Monday that they must avoid any risk that customers might confuse new forms of e-money, including ‘stablecoins’, with standard deposits which are guaranteed against bank failures.
Stablecoins are a cryptocurrency backed by a fiat currency such as sterling or the dollar, or an asset. The sector is still tiny compared to the wider financial sector.
Regulators are under pressure to keep abreast of private sector developments in payments as central banks like the BoE consider issuing a digital version of their currency.
The BoE on Monday proposed a regulatory regime for systemic payment systems using stablecoins and related service providers such as banks and payment companies.
To the extent that systemic payment systems using stablecoins pose similar risks as other systemic payment systems, they should be subject to equivalent regulatory standards, it said.
The Bank and the Financial Conduct Authority proposed how they would regulate stablecoins and their issuers, and the BoE also set out in a letter to bank CEOs how they should handle tokenized deposits, if they offer them.
“If deposit-takers or their groups want to issue e-money or regulated stablecoins to retail customers, then this should be done from separate non-deposit-taking and insolvency-remote entities,” the BoE said.
The BoE and Britain’s Financial Conduct Authority also published preliminary proposals for regulating stablecoins, seeking feedback by Feb. 6.
“Stablecoins have the potential to make payments faster and cheaper for all, and that’s why we want to offer firms the ability to utilize this innovation safely and securely,” said Sheldon Mills, FCA executive director for consumers and competition.
The Bank of England has already been warned lenders a couple of months ago regarding “elevated” risk in the models they use to predict loan losses and criticized them for failing to fully recognize the impact of high inflation and interest rates on borrowers.
UK banks have posted relatively low loan loss charges this year, even as soaring interest rates have fueled a cost of living crisis that has seen households owing about £22bn in essential bills but in a letter to the chief financial officers of nine large lenders on Friday, BoE prudential regulation head Vicky Saporta said the model risk was “elevated” and that some calculations “were not calibrated to capture the impact of higher inflation and interest rates on borrowers’ ability to repay”. (Int’l News Desk)
