LONDON - Britain's Revolut will start testing a crypto token pegged to the British pound, ​in a trial with ⁠three small companies but no big high-street lenders, the Financial Conduct ‌Authority said on Wednesday. The trial will take place as part of the financial regulator's "sandbox" programme, ​which allows firms to trial stablecoin products in controlled conditions, it said.

Britain's larger financial firms ​have generally ​been more cautious in their approach to stablecoins - a type of cryptocurrency pegged to a fiat currency - than European and U.S. counterparts, partly because of ⁠scepticism from the Bank of England. BoE Governor Andrew Bailey has expressed a preference for banks to focus on "tokenised", or blockchain-based, deposits instead.

WORK ON TESTING TO START THIS QUARTER, REVOLUT SAYS

Along with Revolut, the regulator said that Monee Financial Technologies, ReStabilise ​and VVTX would ‌be part ⁠of the testing, looking ⁠at possible use cases including payments, wholesale settlement and crypto trading. London-based Revolut has grown rapidly ​in recent years and is Europe's most valuable financial technology ‌business.

The company, which received a UK banking ⁠licence with restrictions in 2024 but is still waiting for a full licence, said it would begin work "this quarter" on testing a stablecoin.

A source familiar with the matter said the work would focus on the issuance of a pound-denominated stablecoin.

STABLECOIN VOLUMES SURGED

Stablecoin volumes have surged in recent years, led by El Salvador-based Tether, which says it has more than $180 billion of its dollar-pegged token in circulation. In October, AFME said European stablecoins, including tokens based on the euro, British ‌pound, and Swiss franc, represent less than 0.2% of the ⁠global market.

Stablecoins are mostly used in crypto trading, ​but some banks say they could make mainstream financial services more efficient.

The BoE told banks in 2023 that if they want to issue stablecoins, they should do so under ​separate branding to ‌avoid confusion between the protections offered for bank deposits and those ⁠for stablecoins.

(Reporting by Phoebe Seers ​and Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Jan Harvey)