BOE Moves to Regulate Crypto Assets to Maintain Financial Stability

The Bank of England (BOE) has released its first regulatory framework for crypto assets in a recent report titled, “Financial Stability in Focus: Cryptoassets and decentralized finance.”

With the war between Russia and Ukraine still ongoing, organizations like Japan’s Financial Services Agency (FSA) issued a stern warning to crypto firms in the country to stop rendering services to Russian and Belarus entities or individuals.

The European Central Bank (ECB) also passed a similar warning to crypto firms to stop helping Russian individuals to circumvent the financial sanctions placed on the country.

BOE to Regulate Crypto Assets

Concerned that crypto-assets could be used to bypass the financial sanctions imposed on Russia since its invasion of Ukraine, the BOE is seeking to regulate the asset class.

In the report, BoE’s Financial Policy Committee (FPC) said,

“While cryptoassets are unlikely to provide a feasible way to circumvent sanctions at scale currently, the possibility of such behavior underscores the importance of ensuring innovation in cryptoassets is accompanied by effective public policy frameworks to mitigate risks to consumer protection, market integrity, money laundering, and terrorist financing, and maintain broader trust and integrity in the financial system.”

Fast Growth of Crypto Pose Risks to Financial Stability

According to the report, the BOE believes that although the crypto space is still in its growing stage, the fast pace at which it is growing could pose risks to financial stability in the future if left unregulated.

The value of the crypto industry since its inception in 2009 has increased more than 10x, especially between early 2020 and November 2021.

Data from the BOE shows that the crypto space is currently worth about $1.7 trillion or 0.4% of global financial assets, with over 17,000 different crypto asset tokens in circulation.

Although the risks that the crypto space poses to financial stability presently are limited, the FPC warns that if the space maintains its fast growth rate, it would pose greater risks in the future, hence, the need for it to be regulated.

With regards to the regulatory policies that will be placed on crypto assets, the FPC also mentioned that crypto assets or services that perform the same function should be subject to the same laws.