In this newsletter we explore UK tokenisaton and stablecoin regulation with a guest blog from John Bertrand - huge thanks to John for contributing this guest blog.

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UK tokenisation and stablecoin regulation in a new light

Charles Dickens wrote A Tale of Two Cities in 1859, set against the turmoil of the French Revolution. Today, the traditional financial services system is undergoing its own upheaval: a reconstruction into a 24×7 tokenised world that crosses different regulatory perimeters and encompasses a variety of crypto-assets, each with its own rules. The reconstruction is well underway.

The Bank of England’s Stablecoin Consultation and the Financial Conduct Authority’s consultation papers on tokenisation are strikingly different in tone and approach. Dickens’ famous opening lines could be rewritten for the UK market:

Guarding the perimeter

The Bank of England’s mission, keeping money safe through times of stress, could be meaningfully enhanced by regulating the access gateways into the UK market. The FCA’s consultation CP26/13 on cryptoasset perimeter guidance moves in exactly this direction, acknowledging smart contracts, varying cybersecurity risks, and where regulation is most effective.

The Bank, responding to industry concerns about holding wallet limits, has proposed shifting the focus to caps at the issuer level. While a sensible option is tackling the deeper problem in a crisis the speed of capital flight. Dynamic monitoring of flows across the perimeter’s on- and off-ramps would allow early crisis signals to be identified and acted upon before a run becomes unstoppable.

$42bn

$42bn Withdrawn from Silicon Valley Bank in a single day in 2023, triggering its immediate collapse. In near-real-time digital finance, a day is far too long for inaction.

The transition to near-real-time settlement makes the single-day timeframe of SVB’s collapse feel antiquated. The next crisis could unfold in hours. Perimeter monitoring that tracks flow dynamically rather than relying on static issuer caps is better suited to the pace of this new world.

The 40% backing hurdle

The proposal requiring sterling stablecoin issuers to hold 40% of backing assets in non-remunerated accounts represents an economic burden not seen across comparable stablecoin regimes elsewhere. Backing assets for a sterling stablecoin would naturally be high-quality, highly liquid instruments issued in the UK such as Gilts, which are themselves in the process of being digitalised. Requiring a substantial portion to sit idle is a significant drag on viability.

Where the FCA leads

By contrast, the FCA’s response to industry feedback has struck a collaborative note — a sense of working together in a genuinely new digital world.

One telling example:

This is a meaningful concession one that acknowledges the architecture of on-chain systems rather than forcing them into a legacy compliance mould. It is the kind of regulatory pragmatism that builds confidence in a jurisdiction’s digital finance ambitions.

A tale worth finishing well

The hope is that the Bank of England’s responses to industry recommendations will prove as substantively inclusive as the FCA’s. These two consultations need not tell divergent stories. By combining the FCA’s collaborative pragmatism with the Bank’s systemic caution, such as rethought around dynamic perimeter monitoring rather than blunt caps, the UK has a real opportunity to establish a welcoming, coherent regime for the coming digital financial world.

It could yet be the best of times.

Do you agree?

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John Bertrand

Huge thanks to John Bertrand for contributing this guest blog - be sure to subscribe to visit John on LinkedIn:

​John Bertrand​

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