On 24 March 2022, the Bank of England (BoE) published, ‘Financial Stability in Focus: Cryptoassets and decentralised finance (DeFi)’ which sets out the Financial Policy Committee’s (FPCs) view on specific topics which relate to financial stability. The publication focuses on:
- the role of cryptoassets and decentralised finance in the financial system;
- financial stability implications of cryptoassets and associated markets;
- risks to financial stability;
- the FPCs approach to monitoring risks from cryptoassets;
- the FPC’s assessment of financial stability risks from cryptoassets and DeFi; and
- regulatory initiatives to mitigate risks from cryptoassets and DeFi.
Key points regarding the FPC’s assessment of financial stability risks from cryptoassets and DeFi include:
- The FPC continues to judge that direct risks to the stability of the UK financial system from cryptoassets and DeFi are currently limited. But the pace of growth and potential for interconnections with the wider financial system mean that they will present a number of financial stability risks in the future.
- Where crypto technology is performing an equivalent economic function to one performed in the traditional financial sector, the FPC judges this should take place within existing regulatory arrangements, and that the regulatory perimeter should be adapted as necessary to ensure an equivalent regulatory outcome.
- Enhanced regulatory and law enforcement frameworks, both domestically and at a global level, are needed to address developments in these markets and activities, and encourage sustainable innovation as well as maintain broader trust and integrity in the financial system.