INSUBCONTINENT EXCLUSIVE:
Cryptoassets are largely unregulated as they fall outside the regulatory 'perimeter'.London: The Bank of England on Thursday began sketching
out Britain's first regulatory framework for cryptoassets, saying that although the sector remained small, its rapid growth could pose risks
to financial stability in future if left unregulated.Cryptoassets have come under the regulatory spotlight amid concerns they could be used
to circumvent financial sanctions imposed on Russia since its invasion of Ukraine."While cryptoassets are unlikely to provide a feasible way
to circumvent sanctions at scale currently, the possibility of such behaviour underscores the importance of ensuring innovation in
cryptoassets is accompanied by effective public policy frameworks to..
maintain broader trust and integrity in the financial system," the BoE's Financial Policy Committee (FPC) said in a statement on
Thursday.Cryptoassets, such as bitcoin and ether, are largely unregulated as they fall outside the regulatory 'perimeter' and a change of
law would be needed to bring them under the full scope of UK securities rules, a step Britain's finance ministry is looking at."This would
likely require the expansion of the role of existing macro and microprudential, conduct, and market integrity regulators, and close
co-ordination amongst them," the FPC said.The FPC said direct risks to financial stability from crypto were currently limited, but if the
recent pace of growth is maintained, there would be risks in future.The sector globally grew tenfold between early 2020 and November 2021,
and now stands at $1.7 trillion or 0.4% of global financial assets, with over 17,000 different cryptoasset tokens in circulation.Regulation
for the sector should be based on "equivalence", meaning that crypto-related financial services that perform a similar function to existing
financial services should be subject to the same laws, the FPC said.Until cryptoassets are brought fully under the regulatory net, the BoE
is focusing on ensuring that risks from crypto are controlled in the banking sector
The Financial Conduct Authority on Thursday told firms they must fully explain to consumers the risks from unregulated crypto.Regulators
across the world are also trying to grapple with cryptoassets and their offshoots.Stablecoin ConditionsBoE Deputy Governor Sam Woods wrote
fully" by the boards of banks and they would likely need to adapt their existing risk management strategies and systems, Woods told them."We
would also expect firms to discuss the proposed prudential treatment of cryptoasset exposures with their supervisors," Woods said in
reference to the amount of capital needed to cover any losses.The BoE launched a survey of banks' existing exposures and future crypto
plans, setting a June 3 deadline for responses.Stablecoins, which are backed by assets or cash, that became systemically important would
need to be backed by high-quality, liquid assets and loss-absorbing capital similar to that held by banks, the FPC said.Using deposits with
commercial banks to provide backing for stablecoins would pose significant financial stability risks if pursued at scale, the FPC said.The
BoE and the Financial Conduct Authority will carry out further work on rules for stablecoins and consult on a regulatory "model" for
systemic stablecoins in 2023, the FPC said.
