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The United Kingdom, the United States, and Canada are finalizing their stablecoin regulatory plans, while the International Monetary Fund (IMF) is warning Nigeria that dollar-backed tokens come at a cost.
- Bank of England lowers stablecoin cash deposit requirements
- GENIUS implementation focusing on customer identification
- Senators want Treasury to clarify state-level stablecoin rulebook
- Stablecoin surveys offer mixed results
- Canadians hope stablecoin rules will keep them from getting burned
- IMF warns Nigeria re dangers of dancing with dollar-backed tokens
On June 22, the Bank of England (BoE) issued a policy statement regarding “sterling-denominated systemic stablecoins,” aka pound-based stablecoins with market caps large enough that their failure might do damage to the wider U.K. financial system.
Last month, the BoE’s Deputy Governor for Financial Stability, Sarah Breeden, hinted that the bank could loosen the two restrictions the crypto sector claimed would make sterling-backed stablecoins unworkable: the ownership caps (£20,000 for individuals, £10 million for businesses), and the requirement for issuers to keep 40% of their fiat reserves in “unremunerated” BoE accounts. Earlier this month, the House of Lords urged the BoE to rethink its approach on these points.
Lords be praised, the BoE’s new statement reduces that 40% cash requirement to 30%, a figure that aligns with “historical liquidity stress events.” The BoE, which originally wanted 100% of reserves to be unremunerated cash deposits, warned that a further reduction below 30% “would materially weaken liquidity protection and increase risks of disorderly asset sales in stress.”
And these deposits will remain unremunerated, based on the BoE taking issuers at their word that stablecoins “are intended to be a payments instrument, rather than a store of value and therefore will not play a role in monetary policy transmission.”
Commercial bank deposits are out of bounds “due to financial and operation risks, and the contagion risks this would create between stablecoins and the wider financial sector, including wider systemically important institutions.”
This still won’t satisfy stablecoin issuers, but the BoE will allow them to keep up to 95% of their reserves in short-term (six months or less) U.K. government debt securities when they launch, ultimately reducing this figure to 70% as they scale up operations.
Issuers will be allowed to lend sterling-denominated U.K. government debt securities through repurchase agreements. Overnight repos with collateral linked to these securities are also permissible. But other assets, including money market funds, remain off-limits “given the additional financial risks they would introduce to systemic stablecoins.”
Issuers will be required to “promptly” alert the BoE if their central bank deposits fall below 25% of assets required to maintain the 1:1 ratio for more than five consecutive business days. The BoE must be alerted immediately if those central bank deposits fall below 20%.
As for those personal/institutional holding caps, the BoE now says it “will not implement per-coin holding limits for individuals and businesses, recognizing the significant operational challenges, as well as disruption to potential use cases.”
Instead, each systemic stablecoin will be limited to a ‘temporary’ initial maximum issuance of £40 billion (US$53 billion) to “mitigate the risks to credit provision.” The BoE “will regularly review the guardrail, and we expect to loosen, and ultimately remove the guardrail once we are satisfied that the risk to credit provision has been effectively mitigated.”
The BoE cautions that this £40 billion figure “should not be taken as an indicator of the point at which HMT [His Majesty’s Treasury] may recognize a stablecoin issuer as systemic.” HMT, with the help of the BoE and the Financial Conduct Authority (FCA), will determine for themselves “which payment systems using stablecoins and service providers are recognized as systemically important and would therefore fall within the Bank’s remit.”
Systemic issuers will also be required to establish minimum capital requirements equal to six months of their operating expenses or “the cost of executing its recovery plan and its orderly wind-down plan, excluding costs provided for in the wind-down reserve,” whichever is higher. Issuers must notify the BoE if their capital falls below 110% of these minimum requirements.
The BoE is accepting feedback on the new plan until September 22. Assuming no further hiccups, the goal is to have final rules in place by the end of the year and have officially approved sterling-denominated stablecoins circulating by 2027.
GENIUS moves
Stateside, multiple federal government agencies are wrestling with how to implement the stablecoin-focused GENIUS Act that President Trump signed into law last July. The Act’s provisions will take effect on January 18, 2027, or 120 days after its final rules are confirmed, whichever date is earlier.
On June 18, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA) and the Treasury Department’s Financial Crime Enforcement Network (FinCEN) and Office of the Comptroller of the Currency (OCC) issued a joint proposed rule that would treat permitted payment stablecoin issuers (PPSIs) as regulated financial institutions subject to Bank Secrecy Act (BSA) rules for knowing their customers.
PPSIs would be required to maintain an effective customer identification program (CIP) as part of their anti-money laundering (AML), countering the financing of terrorism (CFP), and sanctions compliance programs.
Issuers would be required to collect customers’ names, dates of birth (for individuals) or dates of formation (for entities), addresses, and identification numbers. This information would need to be collected within “a reasonable period of time” after a customer opens an account with the issuer. Based on the information collected, the issuer would need to determine that the individual/entity isn’t on any government list of extremely naughty people.
To be clear, ‘customer’ wouldn’t include end users engaging in stablecoin-based payments or trading stablecoins for other tokens on a digital asset exchange, only to those for whom the PPSI is directly issuing or redeeming tokens.
The agencies are accepting public comments on the proposed rule until August 21.
States’ rights, amiright?
Meanwhile, a bipartisan group of U.S. senators sent Treasury Secretary Scott Bessent a letter last week urging him to be mindful of the GENIUS section that allows individual states to establish their own regulatory regime for smaller PPSIs.
The seven senators (four Republicans, three Dems) reminded Bessent of Section 4(c), which grants states the right to establish a regulatory framework for stablecoins with market caps under $10 billion, provided those state rules are “substantially similar” to the Federal rules for larger PPSIs.
The senators claim “many” states are mulling whether to launch their own stablecoin regulatory regimes, but the proposed rule issued by the Treasury in April “did not address the timeline and procedural requirements related to State certification.”
The senators claim “this lack of clarity creates uncertainty for States” and thus they want Bessent to “promptly issue written procedural guidance clarifying the application, review, and certification process for State regimes.” This should include “clear timelines and requirements,” but it should “not operate as a one-time window that effectively bars future certifications” of state regimes.
Earlier this month, the New York Department of Financial Services (NYDFS) announced “a proposed regulation to build on New York’s first-in-the-nation stablecoin framework” through “additional provisions to ensure alignment” with Treasury’s proposed requirements for GENIUS-compliant state frameworks. (Read the full proposed additions here.)
The NYDFS has for years overseen stablecoin activity by holders of its BitLicense and Limited-Purpose Trust Charter programs, but it now wants to add language governing ‘Authorized Payment Stablecoin Issuers’ to comply with GENIUS. The new rules would limit how much of an issuer’s reserves can be held by any single custodian, and require issuers with market caps over $25 billion to hold at least 0.5% of reserves (up to a cap of $500 million) in insured deposits or insured shares at an insured depository institution.
Surveys say…
The ‘voters love crypto … seriously’ survey released earlier this week by Digital Currency Group (DCG) contained a brief section on stablecoins (page 15) under the banner ‘Education appears as the biggest hurdle to broader digital dollar adoption via stablecoins.’
Asked if they were familiar with ‘digital dollars,’ 44% of registered voters surveyed said they were ‘not at all familiar’ while a further 19% said they were ‘not very familiar.’ Some 23% claimed to be ‘somewhat familiar’ with the concept, leaving just 15% in the ‘very familiar’ slot.
And yet, a combined 47% claimed to be either ‘very’ or ‘somewhat’ likely to use digital dollars, while 50% were a combination of ‘not very’ or ‘not at all’ likely to touch these digital ducats.
Asked to specify what aspects of digital dollars best qualified as ‘interest drivers,’ the fact that they’re backed 1:1 by the U.S. dollar led the way with 41%, followed by lower transaction fees (39%), offered by trusted financial institutions (38%), clear government protections and regulations (35%), and faster payments (32%).
Survey numbers can reflect the views of those commissioning them. In May, the American Bankers Association (ABA), which is waging a furious war to prevent crypto platforms from offering stablecoin ‘rewards’ to their customers, released a survey that found just 24% of respondents believed stablecoins and other digital assets could provide meaningful benefits for people like them. A majority (59%) said stablecoins and other tokens were either ‘not too relevant’ or ‘not at all relevant’ to their day-to-day lives, compared to 26% who ticked the ‘very relevant’ or ‘somewhat relevant’ boxes.
Canadollars are go
Last September, the Canadian government released its survey results on Consumers’ awareness, use, and understanding of stablecoins. The survey found only 21% of respondents could select “an accurate definition” of stablecoins, with 58% reporting they had no clue.
Current stablecoin ownership was acknowledged by just 4% of respondents, along with 5% who reported previously holding the tokens. Among these two groups, 49% reported having “negative experiences,” including 10% who lost stablecoins to fraud, scams, or hacks. Of this latter group, 77% lost C$10,000 (US$7,000) or less, while 23% lost between C$10,000 and C$60,000.
Among those who’d never owned stablecoins, 44% either agreed or strongly agreed that the lack of consumer protection regulation for stablecoins was the primary reason they were keeping their distance.
A few months after this survey was released, Canadian securities regulators approved QCAD, the first CAD-denominated ‘value-referenced crypto asset’ (aka stablecoin) issued by Stablecorp Digital Currencies Inc. A few months prior, the Tetra Digital Group announced that it had raised C$10 million to launch its own CAD-backed stablecoin. Tetra’s token lacked a name at the time but has since been christened CADD.
Canada’s federal government introduced its Stablecoin Framework this spring, and the Stablecoin Act followed shortly thereafter. The Act is expected to come into force next year, with the Bank of Canada designated as the primary authority for overseeing issuers and enforcing compliance.
Nigerian nightmare?
Not every governing body is keen to hop on the stablecoin bandwagon. European Central Bank president Christine Lagarde recently suggested euro-denominated stablecoins aren’t the answer, while maintaining her support for the European Union’s long-planned/oft-delayed CBDC (central bank digital currency), the digital euro.
Other ECB execs have fretted about the risks that dollar-backed stablecoins pose to the EU’s monetary sovereignty, and those concerns appear to be spreading. Last week, the IMF warned that Nigeria’s enthusiastic embrace of dollar-backed stablecoins represents “a digital form of dollarization. By reducing demand for the local currency, it could weaken the transmission of domestic monetary policy.”
Stablecoin popularity could also threaten Nigeria’s financial integrity, as monitoring systems better suited for traditional financial intermediaries may not detect illicit/suspicious activity via digital wallets and crypto platforms.
The IMF acknowledges that stablecoin adoption by the Nigerian population is “a response to persistent frictions in cross-border payments. In Nigeria, those frictions are real, and users have found a workaround.”
The IMF urges Nigeria to implement a ‘pragmatic’ four-point response that starts with enhancing the stability and credibility of the country’s naira currency. Second, Nigeria should strengthen stablecoin oversight by clarifying how issuers will be treated under the country’s regulatory regime. Third, increase visibility by combining blockchain analytics with reporting on naira-stablecoin conversions. And fourth, upgrade fiat payment infrastructure to reduce reliance on “unregulated channels.”
Watch: CBDCs or stablecoins? What the industry leaders actually think
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