Bank of England urges greater crypto regulation after crash to prevent financial stability risks  

The Bank of England called for a strong regulatory regime for crypto after the recent crash to prevent financial stability risks in the UK.

In its Financial Stability Report today, the Bank said the “extreme volatility” in crypto recently exposed several vulnerabilities in crypto markets and was similar to past volatility in traditional financial systems. 

“Unless addressed, systemic risks would emerge if cryptoasset activity, and its interconnectedness with the wider financial system, continued to develop,” the Bank’s Financial Policy Committee wrote in the report.

“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets and activities.”

The Bank also said that without additional regulation, some stablecoins to be used for payments may not provide the level of protections that central bank currencies give.

The sharp downturn in crypto recently has seen prices of major cryptocurrencies plunge and the market cap of crypto plummet from near $3 trillion (£2.5 trillion) last year to about $900bn (£750bn). Bitcoin, the biggest cryptocurrency, is down more than 55 per cent for the year and about 70 per cent from its all-time high of near $69,000 (£57,557) in November 2021 to $19,484 (£16,251) today.

The Bank’s call for stricter crypto regulation comes as the EU agreed on its groundbreaking Markets in Crypto-Assets (MiCA) law last week. This is set to be the world’s first comprehensive regulatory framework on crypto and will come into effect end of next year.

Speaking to City PM, a Treasury spokesperson said that the UK’s upcoming Financial Services and Markets Bill would set up a framework to regulate stablecoins, with consultations on a “world-leading regime” for the rest of the crypto market due later in the year.

“We are firmly committed to putting the UK at the forefront of cryptoasset technology and innovation by capitalising on the freedoms gained by leaving the European Union,” they said. “Our framework will support the safe adoption of crypto whilst giving regulators the agility to respond to market developments, support innovation and protect consumers.”

The crypto rout also has lawyers warning of a wave of crypto litigation that could mirror actions taken against banks following the global financial crisis.