Crypto poses ‘limited risk’ to UK finance, says Bank of England

The Bank of England’s Financial Policy Committee (FPC) has declared that cryptocurrencies “currently pose limited risk to UK financial stability”.

Crypto regulation “needs to develop quickly”, however, the committee said, to address the risks digital assets “could pose in the future”.

In its Financial Stability Report, the BoE took a more serious stance than in July, when it warned of a “spill over” into traditional markets and asserted that interest from traditional finance institutions was a concern.

“The FPC considers that financial institutions should take a cautious and prudent approach to any adoption of these assets,” the bank noted.

It added the FPC judges that direct risks to the stability of the UK financial system from crypto assets were 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 in order to manage risks and to maintain broader trust and integrity in the financial system,” the Bank wrote.

FPC advises cautious and prudent approach

It also said the FPC will continue to pay close attention to developments, including the relationship between crypto-assets and the UK financial system, and “thereby seek to ensure resilience to systemic risks that may arise from further developments in crypto-asset markets”.

“The FPC considers that financial institutions should take a cautious and prudent approach to any adoption of these assets,” the BoE concluded.

FPC also mentioned asset valuations could correct sharply if, for example, market participants re‐evaluate the prospects for growth, inflation, or interest rates.