The Bank of England is preparing a roadmap for cryptocurrency in the country. It is trying to build up a framework for the segment that is growing rapidly and may risk financial stability if left unregulated. In the wake of Russia's invasion of Ukraine, the crypto assets are now under the spotlight of regulatory bodies of various countries as it is concerned and can be used to circumvent the financial sanctions which are imposed on Russia.
Even though it is true the segment may not be able to provide a significant way in circumventing the sanctions at scale and the possibilities are high and this is the reason broader integrity and trust are required in the financial system.
Crypto assets are not highly regulated. It is mostly unregulated and requires a proper law to bring it under the umbrella of securities rules. Moreover, an expanded role of regulators, as well as close coordination, is required.
The Financial Policy Committee of the Bank of England said the risks to the country's financial stability are currently limited, but the risks may increase in the future with the rapid growth in the crypto asset segment, which grew several folds in the period of past one year and is now at $1.7 trillion assets with more than 17,000 crypto asset tokens available in the market.
The FPC added that the regulations need to be based on equivalence, which means the crypto services should be under the same similar laws with other assets of similar functionalities.
Meanwhile, the FCA has asked related firms to explain the risks in full to consumers unless the segment is brought under the regulatory framework completely. The segment is now being controlled as per the banking sector.
The Bank of England lately launched a survey to understand the exposures of banks in the segment and to set up future plans related to the crypto assets. The deadline for responses is June 3.
Stablecoins are generally backed by either cash or assets. The regulatory body requires the backing of loss-absorbing capital and liquid assets as the rule is followed by the banks.
It is learned the FCA, as well as the Bank of England, would be carrying out work in sketching the rules for stablecoins. It is believed the outcome could be as early as 2023.
Apart from the framing of cryptocurrency rules, the Bank of England is piled up with works to control the rising inflation in the country due to Russiaâ€™s invasion of Ukraine which has led to an increase in the prices of food and other necessary items.