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Bank of England calls for tighter regulation of cryptocurrencies

The watchdog said it will seek to ensure risks stemming from cryptocurrency markets are mitigated, by encouraging greater coordination between domestic and international regulatory bodies

By AFP

Published: Mar 25, 2022 04:14:49 PM IST

Nine percent of people living in Britain hold cryptocurrencies, according to a government poll conducted in January. Image: Shutterstock

London, United Kingdom: The Bank of England on Thursday urged global authorities to increase oversight of the cryptocurrency sector to prevent it becoming a risk to financial stability.

The British central bank's Financial Policy Committee (FPC), which is tasked with safeguarding the financial system, revealed the conclusion in a key report on the volatile industry.

The watchdog said it will seek to ensure risks stemming from cryptocurrency markets are mitigated, by encouraging greater coordination between domestic and international regulatory bodies.

"Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to address developments in these markets," the FPC stated in the report.

Concerns for the impact of the crypto-space have come as the industry has experienced rapid growth and adoption.

"Risks to financial stability will increase as cryptoassets become more connected to systematic financial institutions and markets," the FPC added.

The value of cryptoassets rose tenfold between early 2020 and November 2021 and accounted for 0.4 percent of global financial assets, according to the report.

The crypto industry currently has a market size of $1.7 trillion.

Despite rapid growth of the crypto industry, the FPC believes that "direct risks to the stability of the UK financial system from crypto assets and DeFi (decentralised finance) are currently limited".

The FPC added that systematic risks posed by the crypto market are separate from the dangers experienced by retail investors.

The retail sector is of greater concern to Britain's markets watchdog, the Financial Conduct Authority.

Nine percent of people living in Britain hold cryptocurrencies, according to a government poll conducted in January. That was almost double the amount of people from a year ago.

A separate FCA poll found that 14 percent of people who held cryptocurrencies had used debt to facilitate their purchases.

Due to growing adoption of crypto, the FPC has suggested that crypto assets that function similarly to traditional financial tools should face "equivalent standards".

That would particularly affect stablecoins which are regarded as less volatile than other cryptocurrencies because they are pegged to the dollar.

The world's leading central banks are grappling with the regulation of virtual currencies in the context of Russia's invasion of Ukraine.

European Central Bank President Christine Lagarde voiced her concerns on Tuesday that that cryptocurrencies could be used as a loophole to avoid Western sanctions on Russia.

She believed that the surge in rubles being converted into crypto assets comes as sanctions on Russia tighten.