Cryptocurrencies Pose Limited Risk To UK Financial Stability, Bank Of England Avers

The Financial Policy Committee of the Bank of England has today published a report on the financial stability in the U.K., a report that also contains the position of the committee on crypto assets. The report notes the rapid adoption of crypto assets and their integration into the mainstream financial system in the region.

“The FPC judges that direct risks to the stability of the UK financial system from crypto assets are currently limited. However, regulatory and law enforcement frameworks, both domestically and at a global level, need to keep pace with developments in these fast-growing markets to manage risks and to maintain broader trust and integrity in the financial system.”

The FPC recommends that financial institutions willing to offer products and services in the crypto market in the region should adopt these assets cautiously and prudently.

The committee said it is closely monitoring the association between crypto-assets and the larger UK financial system, intending to manage any systemic risks that may ensue from crypto market growth in the region.  

Mainstream banks are among the financial institutions with the lowest crypto adoption rates in the UK — way lower in adoption rates than investment funds and groups. One of the commonly mentioned drawbacks to that adoption is the risk and volatility nature of crypto assets. 

Barclays, Monzo, and Starling Bank, for instance, have been in the news for blocking or suspending crypto-related transactions from retail and institutions traders and investors. And the Financial Conduct Authority (FCA) has been pushing for legal registration of crypto firms by March 2022.

However, the low crypto adoption rates by banks could be changing given what leading figures in the financial sector have been saying during this week’s Token2049 crypto conference in London — that banks are keen to enter the crypto space. Meanwhile, U.K. hedge funds like the Brevan Howard, Fund Marshall Wace, and countless others have been leading the crypto dispensation in the region. 

The report by FPC reveals that U.K. investors are taking higher levels of risk in global markets, especially in leveraged loan markets. To that end, the committee is monitoring those risks and working with international authorities to ensure those risks do not destabilize the financial market, said the report.

FPC said it was monitoring the possible future risks associated with the recent debt failures at the Chinese Evergrande Group, even as those international risk spillovers remained clearly unknown.