The Bank of England argues that crypto with greater integration into the traditional finance system has the potential to pose a greater threat to financial stability.
The Financial Stability Report, released by the Financial Policy Committee on July 5, 2022, describes how the Ukraine-Russia war, supply chain disruptions and tighter monetary policy are squeezing UK homes and businesses. The bank says that the price of risk assets, including cryptocurrencies, has fallen due to slow economic growth and may continue to do so.
The report noted that liquidity issues, such as those found on Celsius, opening up of leveraged positions, and the TeraUSD stablecoin collapse were recently uncovered vulnerabilities in crypto markets, while acknowledging that these vulnerabilities could be attributed to the UK There was no immediate effect on financial stability. It warns that greater coupling between crypto and traditional financial markets would create emerging systemic risks if allowed to proceed unchecked.
John Cunliffe, the deputy governor of the Bank of England responsible for financial stability, expressed a similar view in October last year, which was later echoed by the European Central Bank’s Financial Stability Review published in May 2022. In a speech late last year, Cunliffe criticized the shortfall. increased transparency in the crypto space, which made it difficult to assess the risks.
Accordingly, the FPC advocates for the development of a comprehensive regulatory and law enforcement framework to address developments in the sector.
Consultation on Stablecoins and Crypto Guidance Next
The FPC reiterated its expectation that stablecoins have a stable value, provide legal recourse, and can be redeemed one-to-one for fiat money. It will consult on a recent regulatory proposal by the treasury to allow stablecoins to be used as a means of payment in the UK. executive officers and many more. other.
Bailey is quoted as saying that cryptocurrencies have little intrinsic value.
Brexit offers UK latitude
Brexit allowed the UK to separate itself from EU laws, which gives it some latitude in developing its own crypto regulations. The Financial Conduct Authority has so far taken strictures based on anti-money laundering laws for crypto companies.
Rishi Sunak, the Chancellor of the Exchequer, earlier this year announced the creation of the UK as a ‘crypto hub’. However, the president of the FCA urged realism about how long it would take to prepare the body to oversee crypto issuers and traders, so that investors are adequately protected, and not to rush the process.