In an effort to entice and cultivate a domestic cryptocurrency sector, the Bank of England (BOE) has put out many suggestions about the regulation of stablecoins, with the goal of reducing perceived financial risks.
A prohibition on using custodial wallets to store stablecoins is one of these measures. Stablecoin issuers and Bitcoin hardliners alike in the UK crypto market have, unsurprisingly, voiced their opposition to the prohibition. Benoit Marzouk, CEO of stablecoin issuer tGBP, said that the UK would make a grave error if it did this, since it might cause irreparable harm in the long run.
The Bank of England has recently addressed a number of queries before the House of Lords about stablecoins, with safeguarding the UK banking system as its primary concern.
Huge Setback for the Crypto Sector
The bank is expressing concerns that if stablecoins are allowed to circulate freely, there would be a stampede for deposits and a subsequent reduction in the amount of credit that UK banks are willing to provide.
The Bank of England is “open to other ways of achieving the objective” of credit availability, according to House of Lords Financial Services Regulation Committee testimony given by Bank of England Deputy Governor Sarah Breeden in March. It thinks that it can influence this by prohibiting unhosted wallets.
Breeden told the committee:
“There is this concept of an unhosted wallet, where you haven’t got a wallet provider who is a regulated entity ensuring that AML [Anti-Money Laundering], KYC [Know Your Customer] criteria are complied with. Unhosted wallets will not be permissible in the UK. They are permissible in the US regime.”
This is a huge setback for the cryptocurrency market. It would destroy well-deserved network effects, says Marzouk.