In the recent Bank of England’s Financial Stability Report (July 2022), the Financial Policy Committee (FPC) reported that although crypto asset valuations have fallen sharply since the beginning of this year, this hasn’t posed immediate risks to the UK’s overall financial stability. However, the FPC warned that systemic risks were likely to emerge as crypto asset activities continue to develop due to their interconnectedness with the wider financial system.
The report also raised concerns about “stablecoins” that have no or have riskier backing assets and low transparency. The FPC expects such stablecoins to meet equivalent standards to commercial bank money in relation to the stability of value, the robustness of legal claim, and the ability to redeem at par in fiat. The report emphasized once more the need for enhanced crypto regulation and law enforcement frameworks to address the rapid developments in the crypto markets.
At the end of June 2022, the European Union (EU) agreed on a set of new proposals that included subjecting cryptocurrency transfers to the same money-laundering rules as traditional bank transfers. The Markets in Crypto Assets (MiCA) proposals are intended to provide a comprehensive regulatory framework for crypto assets in the EU. The proposals also aim to address environmental concerns around energy consumption and the impact of digital assets. The MiCA laws will provide EU member states with a common approach to crypto regulation and are expected to take effect towards the end of 2023. The laws are expected to enhance the rate of crypto innovation and adoption in the EU.
In the US, the bipartisan congressional bill on digital assets has been referred to the Committee on Finance. The bill is expected to become law later in 2022 or even possibly in 2023. Australia’s financial regulator, the Australian Prudential Regulation Authority (APRA), has laid out a roadmap to 2025 for a crypto regulatory framework. Crypto regulation in Asia and Africa is fragmented. A common regulatory framework is expected to enhance crypto market developments and overall financial stability.