The Bank of England Financial Policy Committee and other UK regulators are evaluating the regulation of cryptocurrencies following the release of financial stability reports relating to cryptoassets and decentralized finance.
The Bank of England report was released on Thursday, and the Financial Conduct Authority or FCA, along with the Bank’s Prudential Regulation Authority, or PRA, also released documents at the same time in which everyone refers to each other.
The Bank’s Committee, or FPC, said in its 40-page report that crypto assets and DeFi pose a “limited” risk to the stability of the UK’s financial system, but it saw the risk growing “as these assets become more intertwined with the wider financial system.” The FPC responded by promising to assess these risks and make recommendations.
The report found that the current regulatory framework is sufficient to mitigate risk when cryptocurrency technology serves the same purposes as traditional finance. The FPC “welcomed” the Treasury Department’s proposals to regulate stablecoins, including the proposal to involve the Bank in the process, and expressed support for international efforts to regulate DeFi applications.
The FPC advised financial institutions to “take extra care and discretion in any deployment” of crypto assets or DeFi until the regulatory framework becomes more robust. It is in this context that PRA Deputy Governor and CEO Sam Woods wrote a “Dear CEO” letter to banks, insurance companies and designated investment firms on the impact of cryptoassets, directly referencing the FPC report and the FCA notice.
Much of Woods’ letter is devoted to reminding recipients of the existing policy and regulatory framework in light of their growing interest. The letter also asks to complete a survey on organizations’ current exposure to cryptocurrencies and plans for the year by June 3rd.
The FCA notice reminded regulated firms of their “existing obligations when they interact with or are exposed to crypto assets and related services.” He reviewed a list of those commitments, including “client clarity” on regulation and risk, as well as prudential and custodial considerations.
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The FCA paid special attention to anti-money laundering and registration, pointing to an extensive list of unregistered companies dealing in crypto assets. The Agency investigated a number of such enterprises. All unregistered and temporarily registered crypto-currency businesses must register by March 31st or they may be closed in the UK.
This was not the full scope of the Bank of England’s crypto-related papers released on March 24. Responses to the Bank of England Discussion Paper on New Forms of Digital Money have also appeared. He referred to a discussion paper released by the Bank last year on central bank digital currency. The FPC noted that the Bank and Treasury will “begin consultations” on the CBDC this year.