Former BoE fintech lead asserts UK regulations sanction harmonious coexistence of stablecoins and CBDCs

A collaborative effort among the United Kingdom’s Treasury, the Bank of England (BoE), and the Financial Conduct Authority (FCA) may pave the way for the development of regulations that allow cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs) to coexist. In an exclusive interview with Cointelegraph, Varun Paul, former head of Fintech at the BoE and current senior director for CBDCs and financial market infrastructure at Fireblocks, discussed the U.K.’s efforts to establish regulations that support the use of cryptocurrencies and stablecoins while ensuring investor protection and financial stability. Paul noted that the U.K. is narrowing the gap with the European Union’s Markets in Crypto-Assets Regulation (MiCA), which is considered the most advanced global regulatory framework. He explained that the U.K. initially fell behind Europe due to the FCA’s decision not to regulate cryptocurrencies, but the country is now catching up rapidly. The U.K. Treasury published its final proposal in October 2023, outlining plans to regulate the sector and requiring companies offering cryptocurrency-related activities to be authorized by the FCA. Paul sees these publications as an attempt to position the U.K. on par with the EU and foster innovation to establish London as a Fintech and crypto hub. He emphasized the advantage of coordination between the Treasury, BoE, and FCA, as it allows for faster development of regulations compared to the EU, which has to coordinate rules between different states. Paul highlighted that the FCA oversees the management and use of stablecoins and smaller cryptocurrency and Fintech operators, while larger, systemically important operators are monitored by the BoE and its Prudential Regulation Authority. Stablecoins, such as Tether (USDT), play a crucial role in the cryptocurrency ecosystem, with a market capitalization that recently surpassed $100 billion. Paul stated that dollar-backed stablecoins continue to serve as a gateway to the broader cryptocurrency ecosystem until other blockchain-based digital forms of money emerge. The transparency of Tether’s reserves has been a concern for U.K. regulators, who require stablecoins to be redeemable at par and held in liquid assets. Paul acknowledged the demand for cryptocurrencies and digital money and emphasized the need to consider different use cases for stablecoins, tokenized assets, and CBDCs among different institutions. He also discussed a white paper he authored for Fireblocks, which explores the potential of a smart contract-managed system that allows a central bank to issue a CBDC as a base asset for commercial bank tokenized deposits and stablecoins. Ultimately, specific use cases will determine the preference for stablecoins or CBDCs, with crypto-natives potentially favoring stablecoins while older generations lean toward centralized digital currencies issued by trusted financial institutions. The U.K.’s government is working towards passing legislation to regulate stablecoins and cryptocurrency staking by the end of 2024.