UK House of Commons recommends further CBDC tests on viability, risks

December 4, 2023 Coin Telegraph

The U.K. Parliamentary Committee fears that an official launch will demand a significant investment, adding that “It is not clear to us at this stage whether the benefits are likely to outweigh these risks.”

The United Kingdom Parliamentary Committee, House of Commons, has asked the Bank of England and Treasury to carry out further consultative work to determine the benefits of launching a digital pound.

The groundwork and tests related to the launch of a central bank digital currency (CBDC) incurred significant costs for the Bank of England and Treasury, according to a House of Commons Treasury Committee report.

“It is important that the Bank of England and Treasury keep control of these costs to avoid spending more than necessary on a digital pound that might not proceed to being built.”

The ongoing tests of an English CBDC highlighted numerous benefits concerning issuance, distribution and privacy, among others.

The committee asked England’s central bank to avoid speculating that “a digital pound can fix problems it can’t” and to ensure that a digital pound does not worsen the financial exclusion precedent set by the fiat economy.

While the Bank of England and HM Treasury see the need for a digital pound in the future, committing to build the infrastructure for one requires further preparatory work.

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UK stablecoin regulation begins to take shape in multiple FCA, BOE documents

November 6, 2023 Coin Telegraph

Bank of England

It’s not expected to come into force until 2025, but new publications from the FCA and BOE shed light on regulators’ thinking.

A suite of documents was published in the United Kingdom on Nov. 6 that concern stablecoin regulation. The Financial Conduct Authority (FCA) released a discussion paper, as did the Bank of England (BOE). To accompany those, the BOE’s Prudential Regulatory Authority (PRA) released a letter to CEOs of deposit-taking institutions, and the BOE released a “cross-authority roadmap” to link them together.

His Majesty’s Treasury set the stage for the flurry of releases on Oct. 30 with a short document previewing plans for regulation. The FCA paper explored the same ground in much greater detail.

Stablecoin regulation is the first step to broader crypto asset regulation, the FCA said. The discussion paper outlined potential retail and wholesale stablecoin use cases. Its discussion included auditing and reporting, the backing of coins owned by the issuer and the independence of the backing assets’ custodian.

The paper concentrated on ways in which the principle of “same risk, same regulator outcome” could be applied. It proposed using the existing client assets regime as the basis of rules on redemption and custodianship and the senior management arrangements, systems and controls sourcebook to organize business affairs. There are existing operational resilience and financial crime frameworks, as well as numerous others.

The UK FCA is proposing that stablecoin holders have the right of direct redemption. Which makes issuers a lot more like banks and will raise a bunch of AML/KYC issues for issuers pic.twitter.com/lZLQXlmemu
— Sean Tuffy (@SMTuffy) November 6, 2023

The FCA is considering adapting existing prudential requirements for regulated stablecoin issuers and custodians from the existing regime and making them applicable to other crypto assets eventually.

The BOE paper looked at the use of sterling-based retail-focused stablecoin in systemic payment systems. It considered transfer function and requirements for wallet providers and other services, and it partially overlapped with the FCA’s discussion of stablecoin issuers and deposit protection.

The BOE will “rely on” the FCA to regulate custodians, it said, but it left open the possibility of imposing requirements of its own, if necessary. It pointed to Anti-Money Laundering and Know Your Customer requirements for unhosted wallets and off-chain transactions as potential regulatory sore points.

Proposed stablecoin regulatory landscape in the UK. Source: Bank of England

The BOE PRA letter emphasized that the difference between “e-money or regulated stablecoins” and other types of deposit have to be clearly maintained:

“With the emergence of multiple forms of digital money and money-like instruments, there is a risk of confusion among customers, especially retail customers, if deposit- taking entities were to offer e-money or regulated stablecoins under the same branding as their deposits.”

Deposit-taking institutions should limit their innovation to deposits. Issuance activities should have distinct branding, the PRA advised. An issuer that wants to take deposits as well should move quickly and involve the PRA in the process. Finally, innovations in deposit taking are also subject to rules and requirements, it reminded.

Stablecoin regulation timeline. Source: Bank of England Prudential Regulatory Authority

The BOE roadmap included a timeline, with an implementation date of 2025.

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Bank of England will get more power in regulating stablecoins

August 8, 2023 Coin Telegraph

Bank of England

The United Kingdom government could rebalance the power between the Bank of England and the country’s principal financial regulator, the Financial Conduct Authority.

The United Kingdom government could rebalance the power between the Bank of England (BoE) and the country’s principal financial regulator, the Financial Conduct Authority (FCA), in the former’s favor, according to a 40-page consultation response published by His Majesty’s Treasury on Aug. 7.

The British government launched the consultation under the headline “Payments Regulation and the Systemic Perimeter” in 2022 to get market proposals on reforming the BoE payments perimeter, given the evolution of financial stability risks.

The final paper sets out some measures for regulating the so-called “systemically important stablecoins”. The main takeaway is the government’s intention to secure the co-supervision over stablecoins as a joint venture of both BoE and the FCA. First time such regime was suggested in 2022’s stablecoins consultation response document.

However, the BoE would be given a power to prevent the FCA from taking action in relation to a stablecoin provider, and the Prudential Regulation Authority (PRA) would also get a power to keep the FCA away from a specified action, “if it were to give rise to financial stability concerns.”

As the document specifies, most respondents accepted the need for Bank primacy towards the supervision of future systemically recognised payments entities. However, some of them demanded clarity on the limitations of its power.

In July, Andrew Bailey, a BOE governor, stated that both cryptocurrencies and stablecoins fail basic tests of singleness and settlement finality, and hence should not be considered as money. Instead, he proposed to develop “enhanced digital money.”

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Bank of England Governor Blasts Bitcoin (BTC) and Stablecoins, Touts Other Forms of Digital Money

July 12, 2023 The Daily Hodl

BOE governor trashes crypto, stablecoins in favor of ‘enhanced digital money’

July 10, 2023 Coin Telegraph

Bank of England

A retail CBDC or “enhanced” digital money would support the singleness of money and settlement finality, Andrew Bailey said, but crypto isn’t money.

Andrew Bailey, a Bank of England (BOE) governor, delivered a speech July 10 in which he moved smoothly from the central bank’s efforts to control inflation and maintain public trust in financial institutions to why cryptocurrencies are not money. Instead of cryptocurrencies and stablecoins, he would prefer “enhanced digital money.”

The spate of bank failures in the United States and Switzerland earlier this year revealed issues of the singleness of money and settlement finality, Bailey said. Both cryptocurrencies and stablecoins fail basic tests of singleness and settlement finality, he said, without elaborating. “They are not money,” Bailey said. The passage of the Financial Services and Markets Act would bring stablecoins into line, however.

Bank of England Governor Andrew Bailey says inflation is likely to drop “markedly” this year and that the full impact of rate increases has yet to hit the economy https://t.co/kntdoEKYPr
— Bloomberg Economics (@economics) July 10, 2023

Digital money, as it already exists, “entirely held in IT systems,” could be enhanced to become “a unit of money to which there is the capability to attach a lot more executable actions, for instance, contingent actions in so-called smart contracts,” Bailey said.

A central bank digital currency (CBDC) would also be a form of enhanced digital money, Bailey said. “There is no reason that I can think of which makes well-designed enhanced digital money the sole preserve of central banks,” he added, but a CBDC would present distinct advantages:

“Our main motivation for a retail CBDC would be to promote the singleness of money by ensuring that the public always has the option of going into fully functional central bank money that can be used in their everyday lives.”

Bailey had a different view of wholesale CBDCs. The BOE has just upgraded its Real-Time Gross Settlement (RTGS) system. Bailey said:

“This puts us in a very strong position to deliver solutions which can integrate central bank digital money in RTGS with tokenized transactions. We think this is the fastest and most efficient route to take.”

That is without creating a wholesale CBDC, it seems. Bailey added that “cash is here to stay.”

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Bank of England Says Upcoming CBDC System Won’t Share Personal Data With Authorities

June 27, 2023 The Daily Hodl

Digital pound will be pseudonymous with a focus on privacy: BoE CBDC chief

June 27, 2023 Coin Telegraph

Bank of England

The underpinning technology for the U.K.’s CBDC could use an alternative to blockchain technology.

The Bank of England (BoE) has made significant developments in its central bank digital currency (CBDC) program. Tom Mutton, director of fintech at the BoE, recently shared insights on the privacy aspect of the CBDC and why the central bank might look for other options beyond blockchain as the underpinning technology.

In the interview, Mutton said that during a recent meeting of technologists hosted by the BoE to discuss digital pound design, there was a clear disagreement on which ledger should be used for the CBDC. Thus, the bank aims to trial multiple ledger technologies, including blockchain.

Dubbed Britcoin, the development plans for a digital pound were first proposed when the United Kingdom’s Treasury Department and the BoE established a joint task force to research a U.K. CBDC in April 2021. Later, in February 2023, the bank issued a consultancy paper outlining the design of the digital pound.

Currently, the BoE and His Majesty’s Treasury are seeking feedback from the stakeholders and technology experts on the proposed design of the CBDC. The feedback is open until June 30.

Mutton stated:

“We want to be compatible with distributed-ledger business models in the private sector, but we were not convinced that distributed ledgers offered more efficiency over conventional ledgers.”

Cointelegraph reached out to BoE to enquire about what other ledger technologies it was considering. However, the BoE did not respond by publication.

Apart from the discussions about ledger technology, Mutton also talked about the privacy aspect of the CBDC, claiming it would be focused on offering privacy to users and won’t collect personal data. He said the bank would focus on providing the infrastructure, while the private players would be responsible for the innovation.

“There will be no data shared with the Bank of England, we will know what transactions have happened but we will have no data on the individual who did it. While the wallet provider would have the user data but won’t have access to their transaction data.”

Mutton claimed the BoE or the government wouldn’t have access to any user data, and even the wallet providers with limited access to that data will need consent from the users regarding what data they can store. With a focus on retail, the BoE had stated previously that the digital pound could co-exist with private stablecoins.

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BoE fintech head says crypto doesn’t ‘fulfill any of the functions of money’

May 9, 2023 Coin Telegraph

Bank of England

At a recent event, Tom Mutton, the Bank of England’s head of fintech, touted the privacy benefits of CBDCs while denouncing the anonymity of cryptocurrencies.

The Bank of England’s director of fintech, Tom Hutton, recently spoke out on the United Kingdom’s plans to institute a central bank digital currency (CBDC) at the Crypto and Digital Assets Summit in London.

LIVE: Crypto and Digital Assets Summit Day 1. Tune in to hear leaders from across the industry debate the trends that are shaping the future of Crypto: https://t.co/ZiWtmb5j5M

Follow the thread below for key highlights pic.twitter.com/dNxGemJGzf
— Financial Times Live (@ftlive) May 9, 2023

According to a report, Hutton’s talk focused on privacy and anonymity — concepts he says are at odds with each other regarding the Bank of England’s digital currency focus.

While describing the U.K.’s plans for a digital pound as only being viable if “it has the very highest standards of privacy,” Mutton explained such a product was never meant to feature anonymity:

“Privacy and anonymity are used synonymously in a way they shouldn’t be.”

Apparently referencing the potential for cryptocurrency to be used in the commission of criminal acts — something experts estimate accounts for only 0.10% to 0.15% of all cryptocurrency use — Mutton also mentioned that anonymity was “a public policy problem and something that should not be allowed to continue.”

In further comments, Mutton explained that the digital pound would not be interoperable with cryptocurrencies. His reasoning: They don’t “fulfill any of the functions of money.”

Mutton’s comments come less than a month after the Bank of England’s deputy governor, John Cunliffe, spoke at the Innovate Finance Global Summit in London.

During the April 17 event, Cunliffe tackled CBDCs and stablecoins, telling eventgoers the latter would “offer the possibility of greater efficiency and functionality in payments,” but that “it is extremely unlikely that any of the current offerings would meet the standards for robustness and uniformity we currently apply both to commercial bank money and to the existing payment systems.”

In reference to a national CBDC, Cunliffe said a digital pound is “likely to be needed if current trends in payments and money […] continue.”

The Bank of England has yet to announce when the digital pound could launch — or, indeed, whether it will at all. In February, the bank issued guidance suggesting, as Cunliffe recently reiterated, such a product might be needed in the future, but that it was “too early to decide” as of now.