Bank of England Concerned With Potential Increased Crypto Market Risks
December 13, 2021
On December 13, 2021, the Bank of England (“BOE”) published its Financial Stability Report (“Report”) which sets out the BOE’s “view on the stability of the UK financial system and what it is doing to remove or reduce any risks to it.”
The BOE concludes that “[c]ryptoassets currently pose limited direct risks to UK financial stability. However, they will present a number of financial stability risks if they continue to grow at their current rapid pace, and as they become more interconnected with the wider financial system.”
The Report also notes that
Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to influence developments in these fast-growing markets in order to manage risks, encourage sustainable innovation and maintain broader trust and integrity in the financial system.
Report, p. vi.
And that,
Any future regulatory regime should aim to balance risk mitigation with supporting innovation and competition. The FPC considers that financial institutions should take an especially cautious and prudent approach to any adoption of these assets until such a regime is in place.
Id.
The Report also discussed stablecoins and noted that stablecoin arrangements which are used for payments should be regulated “to standards equivalent to those applied to traditional payment chains, and that, where used as money, stablecoins [should] maintain standards equivalent to those expected of commercial bank money.”
The BOE notes that “[s]ome major stablecoin proposals, including from financial services firms, do not appear at present to meet these expectations.”
The BOE Financial Stability Report can be found here:
https://www.bankofengland.co.uk/-/media/boe/files/financial-stability-report/2021/december-2021.pdf
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