The UK government is exploring a potential realignment of regulatory authority, favoring the Bank of England (BoE) over the Financial Conduct Authority (FCA).
According to a 40-page consultation document released on August 7, 2023, His Majesty’s Treasury unveiled a potential realignment of authority between two key players in the UK’s financial landscape: the Bank of England (BoE) and the Financial Conduct Authority (FCA).
This move follows the British government’s initiation of a consultation titled “Payments Regulation and the Systemic Perimeter” in 2022. The objective of this consultation was to gather market insights and opinions regarding potential adjustments to the BoE payment perimeter. The underlying motivation is to address evolving risks to financial stability proactively.
One of the most significant outcomes highlighted in this emerging narrative is the collaborative approach undertaken by the BoE and FCA. Their joint effort is focused on overseeing “systemically important stablecoins,” a critical aspect of the proposed realignment. This collaborative supervision is a pivotal takeaway from the extensive consultation process.
An essential aspect of the potential realignment is the enhanced regulatory authority granted to the Prudential Regulation Authority. This entity would have the power to intervene and prevent specific actions by the FCA, especially if those actions carry inherent risks to financial stability. Likewise, the BoE would be empowered to halt FCA actions related to stablecoin providers, signifying increased regulatory control.
While a consensus emerged among respondents regarding the necessity of BoE oversight for payment businesses with systemic significance, specific stakeholders sought further clarity on the scope of the BoE’s authority. The consultation responses’ quest for precision and well-defined boundaries in regulatory oversight was a recurring theme.
Bank Of England’s Perspective
Andrew Bailey, the Governor of the Bank of England, emphasized that cryptocurrencies and stablecoins lack fundamental attributes that classify them as money, such as singleness and settlement finality. Instead, he introduced the concept of “enhanced digital money” as a potential classification for these digital assets.
Addressing concerns and apprehensions voiced during the consultation process. The government underscored its commitment to ongoing collaboration with regulatory bodies. The aim is to fine-tune the regulatory approach, especially when potential conflicts arise, such as refunding consumer funds while ensuring uninterrupted service.