The Bank of England’s Financial Policy Committee (FPC) has called for “enhanced regulation” of the market, to alleviate potential risks amid the current downturn.
During the vast $2tn loss across the crypto market, the committee (which focuses on the central bank’s role in maintaining financial stability) did not initially believe the situation posed a threat to the wider financial ecosystem.
“Cryptoasset valuations have fallen sharply, exposing a number of vulnerabilities within crypto-asset markets, but not posing risks to financial stability overall”, the bank said in its quarterly financial report.
“Systemic risks” could “emerge if crypto-asset activity and its interconnectedness with the wider financial system continued to develop”, it added.
However, according to notes published today, problems could occur in the future as crypto-assets become integrated further into mainstream finance.
Regulators have taken a more vigilant approach to digital assets since crypto lenders like Celsius froze withdrawals amid the bearish market following the collapse of Terra’s stablecoin in May.
“This underscored the need for enhanced regulatory and law enforcement frameworks to address developments in crypto-asset markets and activities”, read the report.
It has already been suggested that soon a systematic stablecoin will be integrated into the Bank of England’s Special Administration Regime, backed by a deposit, thus adopting the regulation of stablecoins into the traditional financial system.
According to the report, a move like this could be seen as an “undesirable financial stability risk”.
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