- The Bank of England(BOE) has begun the development process of a new framework that aims to introduce cryptocurrencies, including stablecoin, in existing regulatory fields.
- The regulators have two major concerns: Russians evading sanctions through cryptocurrencies and potential risks imposed by digital assets on the UK’s financial stability.
- Further, the FPC said stablecoins could also “meet its expectations,” even if no deposit guarantee scheme is present in such a token.
As per the reports, the Central bank of the United Kingdom, Bank of England (BoE), has started the development of a new framework that targets to bring cryptocurrencies and stablecoins into different existing regulatory fields.
The possibility of Russia using crypto to evade sanctions imposed on it after its attack on Ukraine and the potential risk that crypto-assets can impose on the financial stability of the U.K in the future are the two major concerns of the regulators, according to the latest reports.
In a statement, the Financial Policy Committee of the BOE explains that while it is quite unlikely that crypto assets will provide a way to evade sanctions, however, the possibility of such happenings highlights “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,”
Further, the reports reveal that digital assets such as Bitcoin and Ethereum remain highly unregulated in the U.K, falling outside the scope of the “regulatory perimeter.”
Considering the space in which the crypto industry is growing, the risks that it presents to the financial system of the country can drastically increase, which are currently limited.
Further, the FPC points out that certain changes in the existing laws need to happen in order to limit these potential risks, bringing the cryptocurrencies within the jurisdiction of the U.K. securities rules.
Regulating the sector on the basis of equivalence(implementing traditional laws to firms related to crypto that does the same functions as the current financial services) is one such way using which it could be done.
FPC Believes Stablecoins can “meet its expectations.”
Moreover, the FPC said that in the meantime, a leading stablecoin could also “meet its expectations,” even in case of no deposit guarantee scheme in such a token. Nonetheless, a regulatory framework is required to mitigate these risks.
In addition, the committee said that the FPC speculates that a systematic stablecoin backed by a deposit with a traditional banking institution will bring unwanted financial stability risks.
As of now, the Financial Conduct Authority and the BOE intend to continue framing the corresponding rules and, for systemic stablecoins, will probably discuss potential “regulatory models” in 2023.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2022/03/25/heres-why-bank-of-england-begun-working-on-crypto-regulation-framework/