January 21, 2022
  • January 21, 2022

Bank of England to step up talks on crypto rules

By on December 22, 2021 0

It hasn’t been easy for the Bank of England (BoE) to find the information it needs on institutional cryptocurrency exposure. As a result, the UK central bank has said it plans to step up the pace of global negotiations to establish regulations on the world’s newest assets.

Sarah Breeden, director of financial strategy and risk at the BoE, told The Times that if banks are to offer cryptocurrency trading and custody services, regulators around the world must design rules to protect the system. global financial.

But collecting the data needed to build a regulatory network cannot be done by the UK alone, Breeden added. For the new measures to be successful, financial institutions and central banks must cooperate with the Financial Stability Board. The G-20 organization is responsible for making recommendations to maintain the stability of the financial network.

The BoE recently said in its Financial Stability Board (FSB) report that while UK crypto holdings do not pose a threat to the financial network, its dramatic growth could become more dangerous as currencies become increasingly linked to larger financial systems and the larger economy.

“The significant growth in banks’ exposures to non-backed crypto assets would expose them to financial, operational and reputational risks,” the BoE wrote. While no major UK bank has reported direct crypto exposure, the BoE said, many now offer derivatives trading and custody services.

There is concern that if institutional investors are exposed to crypto as part of their investments, any sharp drop in crypto values ​​could lead financial institutions to sell other assets and possibly send shockwaves through the market. financial system.

The BoE said “improved regulatory and law enforcement frameworks, nationally and globally” are essential and that growing exposure to crypto assets must be met with transparent reporting.

Earlier this month, PYMNTS reported that BoE Governor Andrew Bailey said that while the crypto asset market may not pose a risk to financial stability today, it has all the assets for something that could become so.

“At the current rapid growth rate, and as these assets become more and more interconnected with the wider financial system, crypto-assets will present a number of risks to financial stability,” he said. at a press conference.

See: Calling for new regulatory framework, BoE governor says crypto becomes threat to UK financial stability

In October, an FSB investigation found that cryptocurrencies tied to real-world assets are not widely used for payments. The survey recognized that the market capitalization of existing stablecoins has increased over the past two years and could potentially help improve cross-border payments.

CoinGecko, which calls itself the world’s largest independent cryptocurrency data aggregator with over 6,000 different crypto assets tracked on over 400 exchanges, recently reported that stablecoins issuers minted over $ 133 billion. chip dollars.

“From a policy perspective, it is useful to assess whether and how the use of well-designed global stablecoins could improve cross-border payments. An action to this extent has been added, ”the report says.

MoneyGram, one of the largest cross-border payments companies, said it was examining the use of private stablecoins, such as USDC, to speed up cross-border transactions. Such movements make regulators nervous.

The FSB Roadmap is the latest document to examine how private stablecoins in cross-border transactions should be regulated. In addition, the Bank for International Settlements (BIS) has issued guidelines on how international payments laws might be applied to stablecoins.

Many financial institutions encourage exploration of central bank digital currency (CBDC). For example, the BIS, the International Monetary Fund (IMF) and the World Bank (WB) have said central banks around the world need to consider the cross-border implications of CBDCs. Last month, Benoit Coeuré, head of the BIS Innovation Hub, signaled that central banks should step up work on CBDCs in light of stablecoins.

“The time has passed for central banks to get underway,” Coeuré said in a speech at the Eurofi Financial Forum in Ljubljana. He said regulators should roll up their sleeves and speed up work on the design details of CBDCs.

“CBDCs will take years to deploy, while stablecoins and cryptoassets are already here,” he said. “This makes the start up even more urgent. “

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