The Bank of England Has Called For “Enhanced” Crypto Regulatory Framework.

According to the Bank of England, cryptocurrency does not pose an imminent threat to the financial system but must be addressed.

The Bank of England stated that as the cryptocurrency market grows, it must be addressed.

On Tuesday, the bank’s Financial Policy Committee (FPC) addressed cryptocurrencies briefly in its financial stability report. According to the paper, while cryptocurrency poses a less immediate risk, it is nonetheless necessary to monitor.

The Bank of England’s report specifically mentioned the market’s worth, which plummeted below $1 trillion in June after reaching a record of $3 trillion in November. Several vulnerabilities were highlighted during this downturn, according to the FPC, with similarities to prior periods in traditional finance.

These vulnerabilities included “liquidity mismatches leading to run dynamics and fire sales, and leveraged positions being unwound and amplifying price falls. Investor confidence in the ability of certain so-called ‘stablecoins‘ to maintain their pegs was weakened significantly, particularly those with no or riskier backing assets and lower transparency.”

While the report went on to suggest that these risks did not constitute a threat to the overall stability of financial markets, it did advocate for greater regulatory clarity as the industry matures.

The report said:

“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets and activities,” 

Stablecoins were then singled out as needing extra oversight since “some stablecoins held to be used for payments may not offer similar protections to central bank or commercial bank money.”

In May, the third-largest stablecoin, TerraUSD, lost its peg to the US dollar, wiping out more than $40 billion in value.

Previously, the FPC stated its hopes for stablecoins, which are utilized as “money-like instruments.” The committee expects hese cryptocurrencies to meet “equivalent standards to commercial bank money in relation to value stability, legal claim robustness, and ability to redeem at par in fiat.”

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Patrick

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