Digital assets firm Circle has formally responded to the Bank of England‘s consultation on establishing a regulatory framework for systemic sterling-denominated stablecoins. This move underscores the UK’s efforts to balance financial stability with the promotion of various payment solutions.
The debate over payment stablecoins, or digital currencies, is not limited to the UK, as other jurisdictions are reviewing this new form of payment. In the US, payment stablecoins have been approved under a new law, the GENIUS Act. Yet, disagreements persist. Perhaps most pressing is the debate over whether stablecoin holders should earn interest on their holdings. Establishment banks fear this will undermine their historical banking model of holding deposits and then lending the money out to their customers.
Circle praises the Bank’s proactive dialogue with industry stakeholders, viewing it as a pivotal moment in shaping the future of digital currencies and payments within the nation.
The proposed rules aim to play a crucial role in enhancing the UK’s position as a global financial and fintech center.
One of the core elements in Circle’s feedback addresses the requirements for backing assets.
The company strongly supports allowing issuers of systemic stablecoins to maintain reserves in central bank deposits, as this minimizes risks from third-party involvement and strengthens user trust in these digital payment tools.
Circle also endorses the inclusion of short-term UK government bonds as part of the reserve mix.
However, Circle raises concerns over a mandatory 40% allocation to unremunerated central bank deposits, arguing that such a stipulation lacks a clear rationale and could undermine the economic feasibility of operating under the regime.
Furthermore, Circle cautions that pushing issuers toward revenue models based on transaction fees might harm consumers by increasing costs and stifling competition in the payments sector.
A more flexible approach, it suggests, would foster a vibrant ecosystem that delivers greater value to users.
On the topic of redemption processes, Circle emphasizes the importance of ensuring stablecoins can be redeemed at face value without undue delays, which is fundamental to maintaining confidence.
Yet, it advocates for a flexible, principles-driven standard rather than a strict same-day redemption mandate.
Factors like compliance checks, payment system deadlines, and international transactions could complicate rigid timelines, potentially leading to rushed or subpar operations.
An outcome-focused policy, with allowances for transparency and justified exceptions, would better harmonize with global standards and support practical implementation.
Circle also critiques the proposed holding limits intended to curb potential disruptions from rapid shifts away from traditional bank deposits.
While acknowledging the intent to safeguard the banking system, the firm argues that there’s insufficient evidence to show that non-interest-bearing, regulated stablecoins pose an imminent threat of mass deposit outflows.
Enforcing per-user caps is deemed impractical due to the anonymous nature of stablecoin holdings across wallets and platforms, which limits issuers’ oversight.
Such measures could add unnecessary hurdles, discouraging new entrants and growth without proportionally enhancing stability when paired with other safeguards.
Looking beyond domestic borders, Circle stresses the need for robust international collaboration in regulating cross-border stablecoin activities.
It endorses a deference mechanism for foreign-issued non-sterling stablecoins, calling for clearer guidelines on its execution.
Evaluations should focus on achieving key outcomes, including robust reserve standards, prompt redemptions, anti-crime measures, and resolution protocols.
This approach could reduce regulatory overlaps and boost seamless global operations.
Circle warns that requirements for local subsidiaries might provoke reciprocal restrictions elsewhere, hindering the worldwide utility of UK-based stablecoins.
Finally, Circle highlights the potential of regulated stablecoins to revolutionize wholesale financial markets.
It aligns with the Bank’s vision of incorporating both sterling and foreign stablecoins into initiatives like the Digital Securities Sandbox, which could spur experimentation and upgrade market infrastructures.
Greater detail on integrating stablecoins for on-chain settlements would accelerate these advancements.
Circle acknowledges the Bank’s progress since its earlier discussions and its openness to feedback.