Travelex Foreign Coin Services Limited<\/h2>\n
<\/p>\n
Over the course of a single week we witnessed, in quick succession, the collapse of three of the most crypto-friendly banks in the U.S. \u2013 Silvergate, Silicon Valley Bank (SVB) and Signature. The failure of SVB represented the largest bank failure since the 2008 financial crisis. While U.S. regulators swiftly stepped in to guarantee deposits and avert an immediate banking crisis, the collapse of these three institutions has accelerated what is being called the \u201cunbanking of crypto\u201d in the U.S. While digital asset industry skeptics may view the past week as the final nail in the coffin for crypto, crypto lives on, with Bitcoin rallying to a 9-month high.<\/p>\n
The regulatory framework proposed in this paper focuses only on sterling-denominated stablecoins, as the Bank considers these are most likely to become widely used for retail payments. The Bank recognises the possibility that stablecoins referencing currencies other than sterling could become widely used in the UK and will monitor usage of these. If necessary, the Bank will consider how the proposed regulatory framework would need to be adapted for non-sterling referenced stablecoins. The Bank does not consider that unbacked digital settlement assets would be suitable for widespread use in retail payments in the UK.<\/p>\n
<\/p>\n
We regulate operators of systemic payment systems, and service providers that provide essential services to these, after these have been recognised by HM Treasury (HMT). Recent legislative changes have expanded this remit to capture operators of systemic payment systems that transfer \u2018digital settlement assets\u2019 including stablecoins, and related service providers. Like other systemic payment systems and other financial institutions, systemic stablecoin payment chains may rely on a broader set of service providers to perform their activity than those covered in previous sections. The Bank may, however, consider that a custodial wallet provider warrants recognition by HMT as a service provider. This may be necessary, for example, if the custodial wallet provider provides custody services for most of the systemic payment stablecoins in circulation, or if it provides custody services to multiple payment systems. Subject to HMT recognition, the Bank would then regulate the recognised entity directly to ensure it delivers against the outcomes set out in Table 6.2 to mitigate the financial stability risks it poses.<\/p>\n
The distinction between permissioned and permissionless ledgers refers to the different \u2018consensus mechanisms\u2019 that govern the process used to enable transactions to be approved and recorded. Other UK regulators have also seen their remit expanded over a range of stablecoin entities and activities. Announced by the Government in April 2021, the new sandbox is intended for firms exploring how to use technologies such as distributed ledger technology to improve FMIs. The sandbox will be delivered jointly by the Bank, HMT and the FCA, and will launch later in 2023. HMT is consulting on the first FMI Sandbox, referred to as the \u2018Digital Securities Sandbox\u2019, to be set up under the Financial Services and Markets Act 2023. A new approach in crypto recovery as courts widen scope of interim relief.<\/p>\n