Bank of England gains secondary mandate for stablecoins

HM Treasury announced on Thursday the UK will give the Bank of England a secondary objective to support innovation in payment systems and stablecoins. The bank must report annually to Parliament on progress. Financial stability will remain the Bank’s primary responsibility.

The objective would explicitly cover payment systems that use digital settlement assets such as stablecoins. The government said the change will extend an approach already applied to central counterparties and central securities depositories.

Ministers plan to implement the change by amending the Financial Services and Markets Bill. The bill returns to the House of Lords for debate on Sept. 7 and 9.

Under the proposal the Bank would publish an annual account of its work on payments innovation. The requirement is secondary to the Bank’s statutory duty to maintain financial stability.

The Treasury said the objective is intended to help the UK keep pace with developments such as tokenisation and distributed ledger technology. City Minister Lucy Rigby said those technologies have the potential to transform global financial markets.

In June the Bank set rules for systemic stablecoin issuers that include a reserve split requirement. At least 30% of backing assets must be held as non-interest-bearing central bank deposits for systemic issuers, and the Bank imposed a temporary issuance cap of £40 billion per systemic stablecoin.

In August the Bank’s Digital Pound Lab tested whether a stablecoin and a simulated digital pound could be used together in a cross-border trade payment. The experiment used simulated funds and did not involve real customers or money.

In mid-July the UK and the United States issued a joint statement saying they intend to enable the use of stablecoins in cross-border finance and called for alignment of regulatory frameworks.

Maksym Sakharov, co-founder and CEO of on-chain banking infrastructure provider WeFi, noted the objective’s secondary status leaves financial stability first. He added the annual reporting requirement could increase public scrutiny of the Bank’s stablecoin rules and identified the reserve split as a key commercial consideration for stablecoin issuers.

The Financial Services and Markets Bill amendments will set when the Bank formally takes on the secondary objective and the timetable for the required reporting to Parliament.