Bank of England and regulators assess crypto regulation in raft of new reports

A bundle of interrelated documents reminds financial institutions of their responsibilities and looks at the state of crypto regulation in the U.K.

The Bank of England Financial Policy Committee (FPC) and other United Kingdom regulators are assessing crypto regulation after publishing reports on financial stability relating to crypto assets and decentralized finance (DeFi).

The BoE report was released on Thursday and the Financial Conduct Authority (FCA), along with the bank’s Prudential Regulation Authority (PRA), also released documents simultaneously that all reference one another.

The FPC stated in its 40-page report that crypto assets and DeFi pose a “limited” risk to the stability of the U.K. financial system, but it saw that risk growing “as these assets become more interconnected with the wider financial system.” In response, the FPC promised to assess those risks and make recommendations.

The report found the existing regulatory framework sufficient for mitigating risks where crypto technology served the same purposes as traditional finance. The FPC “welcomed” the treasury’s proposals for stablecoin regulation, including the proposal to bring the bank into the process, expressing support for international efforts to regulate DeFi applications.

The FPC advised financial institutions to “take an especially cautious and prudent approach to any adoption” of crypto assets or DeFi until the regulatory framework is more robust. In that context, PRA Deputy Governor and CEO Sam Woods wrote a “Dear CEO” letter to banks, insurance companies and designated investment firms on exposure to crypto assets, explicitly referring back to the FPC report and the FCA notice.

The bulk of Woods‘ letter reminds addressees of existing policies and regulatory frameworks in light of their increasing interest. The letter also asks for the completion of a survey on the organizations’ existing crypto exposure and plans for the year, due June 3.

The FCA notice reminded regulated firms of their “existing obligations when they are interacting with or exposed to cryptoassets and related services.” It ran through a list of those obligations including “being clear with customers” on regulation and risk, as well as prudential and custody considerations.

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The FCA gave particular attention to Anti-Money Laundering (AML) and registration, pointing out its voluminous list of unregistered crypto-asset businesses. The agency has been investigating a number of those businesses. All unregistered and temporarily registered crypto businesses must complete registration by March 31 or face the possibility of closure in the United Kingdom.

This was not the full extent of crypto-related Bank of England documents released on Thursday. “Responses to the Bank of England’s Discussion Paper on new forms of digital money” also appeared. It referred back to a discussion paper released by the bank last year on central bank digital currencies (CBDCs). The FPC noted that the bank and treasury will “launch a consultation” on CBDC this year.