The UK’s Central Bank has published a report on financial stability as part of its preparation of a regulatory framework for crypto assets and decentralized finance.
The Bank of England (BoE) has prepared a report on the principles of the regulatory framework for cryptocurrencies. The government sees a threat to financial stability from using crypto assets, the report states.
In the statement, analysts of the Bank of England emphasize the need for the proper regulation of digital assets, which can upset the country’s financial stability. The agency also believes that the cryptocurrency market could become a loophole for Russia to circumvent restrictive measures. And while the statement said that cryptocurrencies are unlikely to help avoid sanctions on the scale required, “the possibility of such behavior underscores the importance of regulatory enforcement.”
Going beyond the regulatory framework, cryptocurrencies are not covered by the legislature. In this regard, the BoE stressed the need for legislation to regulate the sector.
Specialists of the UK’s Central Bank identified the main risks to the economy and financial stability associated with the use of digital assets:
- destabilization of systemic financial institutions;
- the emergence of bubbles in the financial markets;
- loss of confidence in the public financial system in case the systemic stablecoin fails to fulfill its obligations;
- direct losses for businesses and reduced investment if the value of crypto assets falls.
All of these risks must be controlled in the banking sector until crypto assets are fully incorporated into government regulation. Sam Woods, Deputy Governor of the Bank of England, urged financial firms to work closely with state authorities on this issue. And the UK’s Financial Conduct Authority (FCA) has additionally notified all firms that deal with cryptocurrency assets of the need for mandatory registration and informing customers of the potential risks of investing in crypto.It is not only the UK that sees digital assets as a threat to the financial system’s stability. Recall that the US also says that it is necessary to regulate all transactions outside the traditional banking system.
