After the recent crash of Terra’s UST, UK government wants to empower BoE to oversee administration
In a recent article, Bloomberg reported that they are worried following the recent crash of Terra’s algorithmic stablecoin UST. The UK government has proposed that additional safety measures be taken to prevent major damage to financial stability in the future due to the collapse of stablecoins.
UK wants to give the central bank more power to oversee stablecoins after the UST crash
In particular, the government wants to give the Bank of England more power to oversee the management of failed stablecoin projects. An article was published by the UK government that states that the existing law needs to be amended to deal with the potential failure of another stablecoin.
The UK proposes additional safeguards to protect against the potential collapse of stablecoins, weeks after the implosion of Terra rocked crypto markets https://t.co/bblfgxm328
— Bloomberg Crypto (@crypto) May 31, 2022
This would include empowering the country’s central bank to oversee the management of “failed stablecoin issuers of systemic importance.” Besides, following the recent TerraUST incident, regulators globally have become nervous and now want to ensure that stablecoins backed by the U.S. dollar do not jeopardize financial stability.
The proposal to be considered by the UK Parliament includes a call for proper regulation that would help cushion the blow from a potential stablecoin crash to consumers, market integrity, and financial stability. TerraUST’s recent crash wiped out $40 billion worth of not only UST but also LUNA, Terra’s native token has now been relaunched following a hard fork. This action turned the failed Luna into the Luna Classic, leaving the original name for the newly minted coin.
The aforementioned proposal states that the government should amend the FMI SAR (Financial Market Infrastructure Special Administration Regime) to cover any possible risks from the failure of issuers. stablecoins are not registered as banks.
FMI SAR will become the primary default framework for handling failed stablecoin projects. Thus, if the collapse of a stablecoin is judged to pose a threat to financial stability, the project that mines it will approach special insolvency arrangements. In addition, the revised law will ensure that a failed project puts the interests of investors who are suffering losses first.
In addition, risky stablecoin projects will operate under BoE supervision, and smaller projects will be reviewed by the FCA.
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