The Bank for International Settlements (BIS) and the Bank of England are collaborating on a project to monitor stablecoin holdings in real time.
The UK’s financial regulatory authority is intensifying its oversight of the cryptocurrency industry, particularly focusing on contentious stablecoins in the market.
Enhancing Regulatory Measures: UK Financial Services Authority’s Pike Trial
The UK Financial Services Authority has introduced the Pike trial to bolster regulatory efforts, with a focus on stabilizing the cryptocurrency market. The trial extends beyond stablecoin debt and asset backing, also encompassing other tokenized products supported by real assets (RWAs). Utilizing on-chain accountability verification, data can be directly extracted from user systems to ensure transparency.
“The Pike Trial signifies a crucial advancement in equipping regulators and regulatory bodies to preemptively identify issues related to stablecoin backing. This technological solution aids in constructing policy frameworks based on comprehensive data analysis. By scrutinizing the balance sheet of asset-backed stablecoins, the system provides insights into the perpetual surplus of supporting assets over liabilities.
While Pike Trial is currently in the beta phase before its full market deployment, employees are undergoing training to proficiently operate the system.
Challenges and Concerns Surrounding Stablecoins
UK regulators have raised doubts about the claimed reserves by stablecoin issuers to secure their holdings, attributing it to the strained relationship between financial authorities and stablecoin issuers. Instances like the FTX crash have prompted cautious approaches, with some issuers and exchanges like Tether and Binance taking self-regulatory initiatives to address concerns.
According to DeFirama data, stablecoins constitute a burgeoning segment of the cryptocurrency market, commanding a market capitalization of $164.2 billion. Despite the rapid growth, the largely unregulated sector has sparked apprehensions among financial watchdogs.
Regulatory Scrutiny and Market Impact
The use of stablecoins has triggered regulatory alarms, particularly surrounding disclosures and potential market turbulence during stressful periods. SEC Chairman Gary Gensler has highlighted certain stablecoins as securities, proposing heightened registration and regulation to tackle the associated risks.
For instance, in 2023, the U.S. SEC initiated an investigation into Binance U.S.’s stablecoin (BUSD) on suspicions of it being classified as a security. Although this sent shockwaves through the market, a recent court ruling favored Binance, leading to the withdrawal of the complaint by the regulator on the grounds that the BUSD sale did not constitute a securities offering.
Following the ruling, the U.S. stablecoin industry witnessed a favorable boost, mirroring improvements in the U.K. stablecoin sector.
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