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The Bank of England’s Financial Policy Committee called for “enhanced regulation” of the crypto asset market to mitigate against potential risks.
Noting recent market turmoil, the committee said crypto assets don't pose a threat to the wider financial system yet, but they might in the future as they become more integrated into mainstream finance, according to meeting summary notes published Tuesday. The committee focuses on the central bank's role in maintaining financial stability.
The collapse of Terra’s stablecoin in May and crypto lenders including Celsius Network and Babel Finance freezing withdrawals last month have prompted regulators to focus attention on the digital asset industry. That’s not to mention the more than $2 trillion of market cap being wiped out over a period of months.
“This underscored the need for enhanced regulatory and law enforcement frameworks to address developments in crypto asset markets and activities,” the bank said in its quarterly Financial Stability Report.
The Treasury has already announced that the Bank of England is looking into bringing systemic stablecoins into its "special administration regime," meaning the central bank would regulate stablecoins that are connected with the wider financial system. A systemic stablecoin backed by a deposit with a commercial bank would introduce “undesirable financial stability risk,” according to the report.
The Financial Conduct Authority, the U.K. 's financial industry regulator, said it will consider the collapse of Terra’s coins when constructing new rules for the industry.
In April, the Treasury announced that it planned to set up a crypto regime and bring stablecoins under existing payments regulations.
The U.K. is not alone in calling for policies to guard against the financial stability risks crypto assets could have. The European Systemic Risk Board, which is responsible for ensuring the stability of the financial system in the European Union, said recently it wanted to set standards with regulators around the world to mitigate against crypto assets that could have an impact on the financial system.