The Bank of England and regulators assess encryption regulation in a large number of new reports

The financial policy committee of the Bank of England and other UK regulators are evaluating encryption regulation after releasing the financial stability report related to encrypted assets and decentralized finance. The report of the Bank of England was released on Thursday, and the financial conduct authority (FCA) and the prudential supervision authority (PRA) of the Bank of England also released mutually referenced documents.
The Bank of England Committee (FPC) said in its 40 page report that encrypted assets and DFI pose “limited” risks to the stability of the UK financial system, but it believes that “as these assets become more and more closely linked to the broader financial system”, the risks are increasing. In response, the FPC undertook to assess these risks and make recommendations.
The Bank of England and regulators assess encryption regulation in a large number of new reports
The report found that the existing regulatory framework is sufficient to mitigate the risk that cryptocurrency has the same purpose as traditional finance. FPC “welcomes” the proposal of the Ministry of Finance on the regulation of stable currency, including the proposal to include banks in the process, and expresses its support for the efforts of international regulation of the defi application.
FPC recommends that financial institutions “take a particularly cautious and prudent approach to any use of encrypted assets or defi” until the regulatory framework becomes more robust. It is in this case that Sam woods, vice president and CEO of PRA, wrote a “Dear CEO” letter to banks, insurance companies and designated investment companies on the risk of encrypted assets, explicitly referring to the FPC report and FCA notice.
In view of the increasing interest of the recipients, most of woods’ letters remind the recipients of the existing policy and regulatory framework. The letter also requested that the investigation on the existing cryptocurrency exposure and annual plans of these organizations be completed on June 3.
The FCA notice reminds regulated companies of their “existing obligations when interacting with or accessing encrypted assets and related services”. It sets out these obligations, including “clarifying to the client” in terms of regulation, risk, prudence and custody.
FCA pays special attention to anti money laundering and registration, pointing out that it has a large list of unregistered encrypted assets. The agency has been investigating some of these companies. All unregistered and temporarily registered cryptocurrency enterprises must complete registration before March 31, otherwise they may be closed in the UK.
This is not the whole content of the encryption related documents released by the Bank of England on March 24. “Response to the Bank of England’s discussion paper on the new digital currency” also appeared. It referred to the discussion paper on central bank digital currency issued by the Bank of England last year. FPC pointed out that the Bank of England and the Treasury will “start consultations” with the CBDC this year.