The Bank of England (BoE), the United Kingdom’s central bank, has reportedly begun developing a new framework aimed at introducing cryptocurrencies and stablecoins into several existing regulatory areas.
According to a report published by Reuters Today, the regulator’s two main concerns are the possibility of Russia using crypto to evade sanctions (imposed after the invasion of Ukraine), as well as potential risks digital assets could pose to the UK’s financial stability in the future.
“While it is currently unlikely that crypto-assets are a viable way to circumvent sanctions on a large scale, the possibility of such behavior underlines the importance of ensuring that innovation in crypto-assets is accompanied by effective public policy frameworks to… maintain broader trust and integrity in the financial system,” the BoE’s Financial Policy Committee (FPC) said in a statement.
Future-proofing the UK’s financial stability
According to the report, cryptocurrencies such as Bitcoin and Ethereum are mostly unregulated in the UK and fall outside the so-called “regulatory perimeter.” At the same time, while the risks they pose to the country’s financial system are currently “limited”, this could change dramatically in the future, especially given the pace at which the crypto industry is growing.
Mitigating these potential risks will require some changes to existing laws, the FPC noted, which would bring cryptocurrencies under the jurisdiction of UK securities rules.
One of the ways this can be done is by regulating the industry on an “equivalence” basis, i.e. applying “traditional” laws to crypto-related businesses that perform similar functions to existing financial services.
Stablecoins can also “meet expectations”
Meanwhile, a major stablecoin — a digital asset pegged to a fiat currency — could also “meet its expectations,” the FPC added, even if such a token doesn’t have a deposit guarantee scheme. However, a regulatory framework should be put in place to mitigate several corresponding risks.
“The FPC believes that a systemic stablecoin backed by a deposit with a commercial bank poses undesired financial stability risks,” the committee added.
Currently, the BoE and the Financial Conduct Authority plan to continue to outline the corresponding rules and will discuss possible “regulatory models” for systemic stablecoins in 2023.
Such as CryptoSlate reported, the BoE has long been concerned about the many risks cryptocurrencies pose to the established financial system. For example, last December, the regulator’s vice-governor for financial stability argued that cryptocurrencies are “growing very quickly” and that “a major price correction could really affect other markets and established financial market players.”
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