The Bank of England has released a proposed regulatory framework for stablecoins. The consultation document considers the views of the crypto industry, but some observers say it remains restrictive.

The Bank of England published the document on November 10, two years after announcing its initial discussion paper. The original document painted a vision for cryptocurrencies that many industry insiders believe would hinder the UK's digital asset space.

The Bank of England stated that it received comments and feedback from 46 different stakeholders, including "banks, non-bank payment service providers, payment system operators, industry associations, academia, and individuals."

The central bank may have dropped some of its tougher requirements, but some in the industry believe it is still not enough. Tom Rhodes, Chief Legal Officer of UK-based stablecoin issuer Agant, stated that the central bank remains "too cautious and restrictive."

Rhodes told Cointelegraph that the new version includes several improvements based on the 2023 version.

However, Rhodes also noted that despite the "positive change in the Bank of England's attitude towards stablecoins," it has shown an "exceptionally high profile" regarding the potential risks of stablecoins.

One of the more controversial restrictions in the document is the cap on so-called "systemic retail stablecoins." The document defines these as stablecoins "widely used by individuals for everyday payments, such as shopping and receiving wages."

The central bank aims to set a limit of £20,000 for individuals and £10 million for businesses when accepting such payment methods. This figure is an increase from the initial proposal, but some do not agree with the idea of setting a cap on cryptocurrency holdings.

Crypto opinion leader Aleksandra Huk posted on social media: "The Bank of England wants to limit stablecoin holdings to £20,000. What right do they have to decide what we can buy, where we can store our money, and how much we can own? … Seriously, this is the best advertisement for privacy coins and leaving the UK."

There are some additional clarifications regarding the proposed rules. Geoff Richards, head of the Ontology Network community, pointed out: "The proposal only applies to pound-denominated stablecoins used in the UK payment system that may become 'systemic.' It does not include USDT, USDC, or random DeFi tokens."

Ian Taylor, a board member of CryptoUK, told Cointelegraph that he understands why the central bank is taking a more cautious approach, at least regarding the stablecoin limits:

The Bank of England should be concerned that withdrawals from banks could reduce their lending capacity, affecting financial stability. "So, that's why they want to proceed gradually."

Rhodes stated that "the vast majority" of UK stablecoins would not be affected by the framework, at least not mentioned in the document. He noted that Mastercard was only recognized as a systemically important payment system in 2021, and non-systemic stablecoins would be regulated under the Financial Conduct Authority (FCA) rules, which are "less restrictive."

Gaining access to central bank liquidity and having deposit accounts at the Bank of England is a welcome update for stablecoin issuers. However, representatives from the crypto industry believe there is still room for improvement in the central bank's plans.

Regarding the stablecoin limits, "the systemic threshold remains uncertain," Rhodes said. He indicated that it would be helpful if the Treasury could clarify when issuers reach a scale that is "risky to the entire UK economy," which would classify them as systemic.

Taylor also pointed out the difficulty of enforcing these stablecoin limits. If the government is issuing licenses to issuers, then they are "responsible for monitoring each individual customer or client, whether wholesale, corporate, or retail, to see how much stablecoin they have been given."

The issue is that many people obtain stablecoins on the secondary market or from "different sources." People can receive stablecoins as payment at work or acquire them through exchanges or peer-to-peer transactions. "So, I am skeptical about the practical enforcement, and we have not seen relevant details."

Overall, "clarity and speed" will make the UK's stablecoin ecosystem more competitive, said Arvin Abraham, a partner at Goodwin Procter. He told Cointelegraph that regulators need to provide issuers with "a clear runway and predictable timelines" to navigate the approval process.

However, speed is not the government's strong suit.

The UK government has been developing cryptocurrency regulations since 2017, when it first adopted anti-money laundering and know-your-customer requirements for crypto-related businesses like exchanges. Now, eight years later, the central bank is still formulating policies based on industry feedback.

The slow progress is becoming increasingly prominent. According to Taylor: "We have been consulting on a broader framework for nearly five years, yet we have not really implemented any licensing system, which has caused many frustrations."

He said, "This is of no help to businesses wanting to launch new stablecoins in the UK; they have no idea how to plan their path." This, in turn, forces them to turn to overseas jurisdictions with established regulatory frameworks.

Taylor explained that there are many reasons behind this, including frequent government changes and the lack of true drivers among key stakeholders, whether the current government, the Treasury, or the FCA, all of whom have failed to take on significant responsibilities.

While the UK is slow to advance crypto regulations—slower than many in the industry expected—Abraham believes that "the central bank's approach is pragmatic and fair. The core message is to welcome innovation, but if you want your token to operate like a currency, it must meet currency-level control standards."

Related: Senator Tim Scott pushes for a vote on cryptocurrency market bill in December

Original article: “The Bank of England is still ‘too cautious’ on stablecoins”

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