The Bank of England (BoA) revealed that they are currently in the process of producing a legal framework specifically for digital assets, with the main reason cited as the fast-paced growth of crypto that can pose a great risk on the country’s economy in the future.
Moreover, the Financial Policy Committee (FPC) of the Bank of England, mentioned the ongoing war in Ukraine as the number one reason for the sudden need for a legal framework in England.
And that while at the moment crypto is not yet at the level to be used to avoid the sanctions, for example, having clear crypto legislation will not only guarantee stability but also ease the way to innovation of crypto technology altogether.
If we take into account that the crypto industry reported a tenfold growth between 2020 and 2021, it is currently at $1.7 trillion, which equals around 0.4% of all global finances, and with more than 17.000 various crypto assets circulation at the moment of writing.
At the time being, given that there isn’t crypto legislation available that will regulate digital assets, The Financial Conduct Authority of England obliged the banks in the country to explain to its customers the risks that come with trading unregulated crypto assets.
Furthermore. another matter that the FPC of England addressed along with the plans about a crypto legal framework, was the growing demand of the banks in the country for stablecoins.
The Deputy Director at the Bank of England, Sam Woods, warned the lenders that the risks from unregulated crypto activity “should be considered fully”, and that in order to operate they must adapt their operation to meet the requirements.
Similar to the stance of Woods, the FPC also warns about the dangers of backing stablecoins assets or cash. According to the FPC, in order to maintain stability, the stablecoins must be backed by quality assets with the ability to absorb losses, such as the ones that banks usually have.
However, the FPC warns that backing stablecoins by using deposits from banks will only exponentially increase the risk in the long run.
Finally, the FPC ended the statement by revealing that starting in 2023, the Bank of England and the Financial Conduct Authority will present a specific legal “model” that is supposed to solve the issues regarding stablecoins.
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