The proposal from the Bank of England (BOE) to prohibit custodial wallets for stablecoins has drawn significant opposition from the UK’s crypto sector. This move, aimed at mitigating financial risks, has been criticized by industry leaders who argue it could hinder the growth and competitiveness of the crypto market in the UK.
Benoit Marzouk, CEO of the stablecoin issuer tGBP, expressed concerns about the potential negative impact of the ban, stating it could cause "long-term damage that is hard to unwind." The BOE's rationale centers on protecting the banking system, fearing that easy access to stablecoins might lead to deposit runs and affect credit availability.
In a recent discussion with the House of Lords, Deputy Governor Sarah Breeden highlighted the BOE's commitment to maintaining financial stability and indicated openness to alternative methods to achieve the desired credit availability. However, she emphasized that unhosted wallets, which lack regulatory oversight for compliance, would not be allowed.
The proposed restrictions could severely limit operational flexibility for crypto transactions, raising alarms within the industry about the potential erosion of established network effects.