BoE looks to tighten crypto rules

The Bank of England will step up talks next year with its international counterparts on a regulatory regime for fast-growing crypto assets.

Sarah Breeden, executive director for financial strategy and risk at the Bank, said that moves by banks to offer cryptocurrency trading and custody services to clients meant that global regulators needed to design rules to protect the financial system.

Crypto investments take three primary forms: currencies such as bitcoin, which are not backed by any assets; so-called stable-coins, which aim to hold a store of value more like a means of payment; and decentralised finance, whereby a loan agreed between individuals could take the form of a string of computer code.

“The closer those assets get to the core of the financial system, the more likely those knock-on effects are likely to be material.” While this is just 1 per cent of all global assets, the vast majority of those assets are in “unbacked” items such as bitcoin, which have no underlying assets supporting them.

“We don’t have a regulatory framework that’s fit for crypto-coins yet, but what we are doing is rolling our sleeves up and getting ready to build it,” Breeden said.

“The ability to get data on what institutional investors are [holding] is a challenge,” she said.

While the Bank has said the risk posed to the financial system by the cryptocurrency market is limited at present, it wants to know more about the sector’s growth.

The Bank of England faced “challenges” in finding data on cryptocurrency holdings by institutional investors.

This was work, Breeden said, the Financial Stability Board would discuss that — a body that unites central banks globally, including in Japan, America, Europe and Australia.

The market value of crypto assets has increased tenfold since 2020 to around $2.6 trillion.

The Treasury has already proposed that the Bank regulate stable coins, but this system does not yet exist.

Some 2.3 million Britons own crypto investments, but their holdings are typically small.

Summarised www.sba.tax

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