The Bank of England (BoE) published the framework principles for shaping the regulatory and legal framework for cryptocurrencies, focusing on the future risks posed to financial stability by a new class of assets.
The BoE also noted the need for sector-specific rules to ensure compliance with the sanctions regime in light of the restrictions imposed on Russia due to the invasion of Ukraine.
“While crypto-assets are unlikely to provide a viable path for broad sanctions evasion at present, the possibility of such a route underscores the importance of supporting innovation with effective regulatory frameworks that uphold the integrity of the financial system and trust in it,” the document says.
“This will likely require expanding the role of existing regulators, as well as closer coordination among them,” the central bank added.
The BoE stressed that digital currencies fall outside the regulatory ‘perimeter,’ and changes to the legislation are needed to ensure their ‘full coverage’.
“This will likely require expanding the role of existing regulators, as well as closer coordination among them,” the central bank added.
Direct risks to financial stability from crypto-assets are currently assessed as limited by the BoE, but could rise if the sector’s growth continues.
Officials say regulation should be ‘equivalent’. That means that if crypto-asset services provide services akin to those in traditional finance, the applicable rules should apply.
Until digital assets are fully integrated into the regulatory framework, the BoE intends to ensure that the risks associated with them are controlled within the banking sector.
In a letter, Deputy Governor Sam Woods of the Bank of England drew attention to this point. He also expressed hope that financial firms on this issue will work closely with the regulators.
The Financial Conduct Authority reminded crypto firms of the need to register and to fully inform consumers about the risks of investing in digital assets.
The Bank of England called for international cooperation in cryptocurrency regulation.