The Bank of England(BoE) has started outlining Britain’s first regulatory framework for crypto assets. It states that while the crypto sector is on a small scale, its growing trajectory, if not regulated, could pose risks to financial stability in future.
As per the official statement, crypto assets have come under the regulatory spotlight amid concerns they could be used to circumvent financial sanctions imposed on Russia since its invasion of Ukraine.
In Brief:
- The recent statements hint at the introduction of new laws to include them into the confines of UK securities rules.
- BoE’s Financial Policy Committee also noted that a stablecoin without a deposit guarantee scheme needs regulations to reduce risks.
“While crypto assets are unlikely to provide a feasible way to circumvent sanctions at scale currently, the possibility of such behaviour underscores the importance of ensuring innovation in crypto assets is accompanied by effective public policy frameworks to… maintain broader trust and integrity in the financial system” read the statement from BoE’s Financial Policy Committee(FPC).
Crypto assets like bitcoin and ether remain mostly unmonitored as they aren’t included in the scope of regulatory confines. Thus, the recent statements hint at the introduction of new laws to include them into the periphery of UK securities rules. Britain’s finance ministry is already considering this step.
Citing the sector’s ‘tenfold’ global growth, the FPC said that although direct risks to financial stability from crypto were currently limited, if this trend of growth follows, there would be ‘risks’ in future.
The FPC advised that the monitoring of the sector should be based on ‘equivalence-based’. Thus, implying that the crypto-centred financial services functioning like the current financial services must be subjected to the same laws.
BoE is trying to make sure the risks from cryptos are controlled in the banking sector, until these crypto assets are fully included in the regulatory framework.
The FPC also noted that a stablecoin without a deposit guarantee scheme or strategy for slowing itself in case of any trouble, has a capability of “meeting its expectations” in the presence of regulations that reduce risks.
“The FPC judges that a systemic stablecoin that is backed by a deposit with a commercial bank would introduce undesirable financial stability risks” it added.
In December, too, BoE had reportedly implied toughening up the pace of international talks on introducing regulatory plans for the assets. Thus, the bank’s official statement on crypto assets just restates its apprehension and thus, the need for regulations on this matter.
