Bank of England to Create Crypto Regulation Draft

Bank of England to Create Crypto Regulation Draft
  • The Bank of England is looking to regulate cryptocurrencies and stablecoins.
  • The invasion of Ukraine and the risk of fast-growing crypto assets are the main reasons for developing these new regulations.
  • Stablecoins should meet expectations before they could be accepted as a means of payment.

The Bank of England (BoE), the central bank of the United Kingdom, has reportedly begun developing a new structure that seeks to bring cryptocurrencies and stablecoins into numerous existing regulatory fields.

According to a report by Reuters, the two main reason why crypto has become the spotlight of developing new regulations is the ability of Russia to evade sanctions by using crypto following the invasion of Ukraine, and also the upcoming risk that fast-growing crypto assets may create to U.K.’s financial stability.

The Bank of England’s Financial Policy Committee (FPC) said in a statement: 

“While crypto assets 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 crypto assets is accompanied by effective public policy frameworks to…maintain broader trust and integrity in the financial system.” 

The report stated that cryptocurrencies, including Bitcoin and Ethereum, are unmonitored, as they went outside the regulatory parameter. FPC stated that crypto’s current risk to financial stability is still limited. However, the risk would come in the future if crypto’s fast pace of growth continues.

Therefore, Britain’s finance ministry is seeking a step to bring them under the authority of the UK securities rules. 

FPC said regulation for the sector should be based on “equivalence”, which means that crypto-related financial services that carry out the same function as existing financial services should be applied with traditional laws.

Currently, stablecoins — claiming to maintain a stable value against a fiat currency — are not a mainstream payments in the UK. But, with the development of crypto, regulators are checking the potential for a stablecoin to become a systematic payment system 

If a systematic stablecoin fails to meet obligations or suffers an operational failure, it might lose public trust in money. Therefore, the FPC has arranged “expectations” that systemic stablecoins would need to meet before becoming a means of payment. 

Right now, the Bank of England and the Financial Conduct Authority will proceed to map out the corresponding rules. Furthermore, they will consult on possible “regulatory models” for systemic stablecoins in 2023.

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