- The Bank of England has sketched a framework for how it intends cryptocurrencies to be regulated.
- The apex bank hinted that cryptocurrency companies will be subject to the same rules that regulate the banking industry.
- UK regulators have eyed cryptocurrencies with a strong measure of distrust in the past.
England’s apex bank has led the charge in providing regulation for the growing asset cryptocurrency ecosystem. The framework ushers in an era of “equivalence” with cryptocurrency firms that offer financial services being subject to the same rules as banks.
The Bank of England has begun drawing out the plans for regulating cryptocurrencies in the country. The move appears to be a bolt from the blue as in the past the BoE has referred to cryptocurrencies as being a small industry with no real effects on the financial industry.
In recent weeks, cryptocurrencies have come under intense scrutiny, especially with the circumstances surrounding Russia’s invasion of Ukraine. Cryptocurrencies have been used to raise money for Ukraine to aid the war effort while there is palpable fear that Russian could turn to cryptocurrencies to bypass sanctions.
BoE’s Financial Policy Committee stated that the possibility of Russia pivoting to cryptocurrency was slim but such thoughts underscores the importance of ensuring innovation in crypto assets that is accompanied by effective public policy framework.” At the moment, cryptocurrencies are unregulated and the creation of a comprehensive cryptocurrency legislature would bring them under the purview of regulators.
The Financial Policy Committee added that the BoE will be pursuing a policy of equivalence which means that crypto firms that offer financial services will be regulated by the same rules that control banks. In the meantime, the apex bank will concern itself with limiting the negative effects that cryptocurrencies could have on the sector.
The Steps Taken So Far
The Bank of England’s Deputy Governor Sam Woods had written a letter to the CEOs of banks and other investment firms to alert them of the potential risks from exposure to cryptocurrencies while proffering solutions to the challenges. He called for “firms to discuss the proposed prudential treatment of crypto-asset exposures” with partners.
The BoE has a particular interest in stablecoins with the FPC eyeing 2023 for the launch of comprehensive cryptocurrency legislation. Other regulators in the UK have announced steps to control crypto with the Advertising Standards Agency issuing a “red alert” to firms engaged in crypto adverts to comply with existing standards. The advertising watchdog has flagged down the ads by firms like Coinbase and eToro for not explaining to consumers the risks associated with investing in cryptocurrencies.
The UK’s Financial Conduct Authority recently gave an order for all crypto firms to be registered with the agency before March 31. At the moment, only 33 firms have met the benchmark with over 80% of applicants being rejected.