The Bank of England began drafting Britain’s first regulatory framework for crypto assets on Thursday, warning that while the industry is now tiny, its rapid expansion might pose a danger to financial stability if left uncontrolled in the future.
Concerns that crypto assets might be used to avoid financial restrictions placed on Russia since its invasion of Ukraine have prompted regulatory scrutiny.
“While crypto-assets are unlikely to provide a feasible way to circumvent sanctions at scale at this time,” the Bank of England’s Financial Policy Committee (FPC) said in a statement on Thursday.
“The possibility of such behavior underscores 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.”
Bank of England trying to Secure financial stability in the UK
Cryptocurrencies like Bitcoin and Ethereum, according to the report, are generally uncontrolled in the United Kingdom and lie outside of the so-called “regulatory perimeter.”
Nonetheless, while the threats they pose to the country’s financial system are presently “minimal,” this might alter dramatically in the future, especially given the rapid growth of the crypto business.
The FPC stated that some adjustments to current legislation are necessary to address these potential risks, which would put cryptocurrencies within the authority of UK securities rules.
One option to do this is to regulate the industry based on “equivalence,” which entails applying “conventional” regulations to crypto-related businesses that perform comparable duties to current financial services.
Meanwhile, a big stablecoin which is a digital asset tethered to a fiat currency could “meet its expectations,” even if it lacks a deposit guarantee mechanism, according to the FPC.
However, a regulatory system capable of minimizing the numerous dangers associated with it would be required.
The FPC believes that a systemic stablecoin secured by a commercial bank deposit would pose unfavorable financial stability risks.
The Bank of England and the Financial Conduct Authority are already drawing out the guidelines, and in 2023, they will consult on various “regulatory frameworks” for systemic stablecoins.
Countries that fail to see the true potential of crypto, will eventually fall out. To recover from such a stage, would be nearly impossible.