Michaela
United Kingdom regulators have stepped up scrutiny of stablecoins and the broader crypto industry, warning they could pose risks to the country’s financial system and monetary stability.
At its meetings on April 4 and April 8, the Bank of England’s Financial Policy Committee (FPC) emphasized a sharp increase in stablecoin and unbacked crypto activity over the past year. In response, the FPC issued a warning about the potential risks these developments could pose to financial stability, underscoring concerns tied to the growing adoption of digital assets without clear backing.
The UK’s Financial Conduct Authority (FCA) and its central bank have been collaborating on developing regulatory frameworks for stablecoins, aiming to strengthen financial resilience.
“A key determinant of the resilience of stablecoins was the liquidity, credit and market risks of their backing assets, which were in place to ensure that redemptions can be met in a timely manner at par, even in periods of stress,” the committee stated.
Committee members raised concerns that the expansion of stablecoin use beyond crypto settlements could significantly impact both retail and wholesale cross-border payments. In particular, the adoption of stablecoins by households and small to medium-sized enterprises for cross-border transactions could lead to “currency substitution,” increasing counterparty risks.
U.S. and UK Scrutinize Stablecoins Amid Growing Regulatory Efforts
As the UK intensifies its scrutiny of stablecoins, similar regulatory efforts are underway in the U.S., where lawmakers are working to establish clear frameworks for stablecoin usage and its potential impact on financial stability.
The U.S. government is taking steps to regulate the growing stablecoin market with two key legislative proposals aimed at addressing potential risks to financial stability and consumer protection.
The GENIUS Act and the STABLE Act are two bills currently making their way through Congress, each proposing a distinct approach to regulating stablecoins, which are digital assets pegged to traditional currencies, often the U.S. dollar. These bills focus on ensuring that stablecoins are properly backed, provide transparency, and comply with necessary safeguards.
Both pieces of legislation reflect growing concerns within the U.S. government regarding the role of stablecoins in the broader financial system.
As the bills continue to advance, they emphasize the need for clear regulatory frameworks to ensure that stablecoins do not pose undue risks to the financial system or allow for potential abuses. The outcome of this legislative effort will likely shape the future of stablecoins and digital assets in the U.S. financial landscape.
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Michaela has no crypto positions and does not hold any crypto assets. This article is provided for informational purposes only and should not be construed as financial advice. The Shib Magazine and The Shib Daily are the official media and publications of the Shiba Inu cryptocurrency project. Readers are encouraged to conduct their own research and consult with a qualified financial adviser before making any investment decisions.
