The rapid growth of the cryptocurrency market without proper regulation could pose risks to financial stability. The Bank of England said, according to Reuters.
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The issue gained urgency amid fears that digital assets could be used by Russia to bypass sanctions.
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\”While cryptocurrencies are unlikely to help bypass sanctions at the scale required, such a possibility underscores the need for effective policy frameworks to sustain broader trust and integrity in the financial system,\” the statement said.\
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Cryptocurrencies are moving beyond the so-called regulatory perimeter. Legislation will be needed for them to fall fully under securities rules.
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Regulation of the sector should be based on the principle of “equivalence”. In other words, crypto-related financial services that perform the same function as in the traditional system should be subject to the same laws, the statement said.
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Until a regulatory framework is developed for cryptocurrencies, the Bank of England will focus on mitigating crypto-related risks in the banking sector.
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According to Deputy Bank of England Governor Sam Woods, lenders will have to scrutinise such challenges and adapt their strategies as well as risk-management systems.
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\”We expect that organisations will discuss the proposed prudential approach with the regulators,\” Woods said.\
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The Bank of England and the UK’s Financial Conduct Authority will continue work on rules for stablecoins and will run consultations on a regulatory “model” for systemic stablecoins in 2023.
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In December 2021, the Bank of England called for international cooperation in regulating cryptocurrencies.
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Earlier the regulator considered regulating stablecoins and pointed to the need for urgent development of a regulatory framework for digital assets.
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