The Bank of England (BoE) called for tighter regulations on the digital assets market, according to a report by Coingeek.com on July 9. The central bank said that the UK needs “enhanced regulations” for the market to prevent from potentially posing a greater risk to financial stability while it continues to grow. The statement was published in the Financial Stability Report written by the Bank of England’s Financial Policy Committee (FPC) this week. It particularly highlights the “extreme volatility” among digital currencies, including stablecoins.
During this period, the digital assets market has also exposed several vulnerabilities similar to what occurs in traditional financial markets, such as liquidity mismatches that exposed bank run dynamics and massive leverage position liquidations in the market. The Bank of England conceded that while these vulnerabilities do not pose a significant risk to the overall financial stability of the UK, they are enough reason to keep a close eye on regulating the market. This is because the continued development of digital asset markets could eventually pose a risk to financial stability.
If crypto-asset activity and its interconnectedness of with the wider financial system continues to develop, systemic risks could emerge. The enhanced regulatory and law enforcement frameworks are therefore needed to address the developments in these markets and activities.
The U.K. government has provided a strong regulatory and law enforcement framework for digital assets. The country’s parliamentary agenda approved by the Queen’s Office contains two major bills that will address digital assets regulations as well as give law enforcement new powers over the marketplace.
It is reported that the UK is not alone in its stance on the potential stability risks posed by the growth of digital assets if unchecked. The Reserve Bank of India (RBI) also made similar points in its Financial Stability Report.