Bank of England and FCA examining stablecoin framework as US floats ‘passporting’
by Michael Klimes and Aliya Shibli
The UK must be “very careful” how closely its future stablecoin framework aligns with the US GENIUS
Act, a leading economic expert has warned, with a framework that hews too closely to the US
regulations leaving the UK open to contagion risks.
Creon Butler, who leads the global economy and finance programme at Chatham House, told The
Banker that the light touch approach taken by the GENIUS Act (see Regulation Tracker), which
regulates stablecoins, may not be robust enough and could pose “unacceptable risks” to the UK’s
financial system.
Such risks would be especially acute if the UK allows passporting by crypto companies regulated in
the US, under a regulatory equivalence approach that would increase the chance of any future blowup in private US digital assets spreading to the City of London.
“This could have parallels to what happened in the run-up to the 2008-9 global financial crisis,”
Butler told The Banker.
“Short-term gains in terms of a boost to London’s role in the industry will not compensate for
potentially enormous long-term costs.”
Butler’s comments follow the establishment of a “task force for markets of the future” by the US and
UK last month to explore collaboration on digital asset regulation.
The outgoing head of the New York Department of Financial Services, Adrienne Harris, called for UK
and US crypto companies to gain access to each other’s markets, noting that “passporting could be
really interesting”.
The Financial Conduct Authority and the Bank of England are jointly developing the UK’s stablecoin
regime. The FCA has already consulted on its proposed rules for stablecoin issuance and crypto asset
custody with final rules to be published in 2026.
The Bank of England is due to publish a consultation in the coming months on a systemic stablecoin
regime that concerns stablecoins used as money for everyday payments.
Earlier this year, a coalition of UK and international trade bodies wrote to the UK government urging
it to clarify its position on digital assets and follow the US in providing stronger leadership on
blockchain.
Speaking at a Moody’s conference in London on October 9, Butler said that while the current
strategy of the UK government is to have “good relations with everybody”, it will eventually have to
choose what international bloc it wants to align with on financial regulations.
He said the three big powers shaping financial regulation are the US, China and EU, describing the
latter as a “rules-based” bloc.
“My argument is that we should choose the rules-based group, which means being closer to the EU,
and we may need to eventually have tough negotiations with the US,” he said.
Momentum behind stablecoins has increased steadily in the past year, with a pro-stablecoin
approach at the heart of Trump’s election campaign last year.
Stablecoin market capitalisation now exceeds $300bn worldwide, up from $200bn just seven months
ago, with mainstream banks increasingly looking at how they can be adopted to improve crossborder payments.
“The UK has an opportunity to build on the momentum in the US, not retreat from it — aligning
where it makes sense, whilst maintaining the high standards that make its financial system trusted
worldwide,” Simon Jennings, executive director at the UK Cryptoasset Business Council, told The
Banker.
“The Bank of England and FCA face a complex task in getting this balance right and we welcome its
continued engagement to ensure regulation supports both innovation and stability.”
Bank of England governor Andrew Bailey, previously a stablecoin sceptic, struck a more open tone
earlier this month in an article for the Financial Times, noting how they could be used to cut reliance
on bank lending.
While the European Central Bank remains sceptical about private stablecoins, the bloc’s lenders are
still gearing up to use stablecoins.
A cohort of large European banks including UniCredit and ING jointly launched a euro-backed
stablecoin in September to bolster the region’s payments autonomy and reduce its reliance on dollardenominated stablecoins.
The US GENIUS Act “transcends American politics” and would outlast the Trump administration,
according to Riccardo Tordera-Ricchi, director of policy and government relations at The Payments
Association.
“This is a global phenomenon, where the US added on good regulatory frameworks in Hong Kong
and Singapore. The UK needs to benchmark its legislation on the best practice to avoid losing its
status of financial global centre,” Tordera-Ricchi said
