On May 22, the UK’s House of Commons Treasury Committee (Treasury Committee) updated its webpage on its inquiry into what it refers to as “digital currencies.” The webpage now provides links to written evidence the Treasury Committee has received from the UK Financial Conduct Authority (FCA) and the Bank of England (BoE) in which they outline their work in this area.
The FCA’s response considers whether different forms of cryptoassets and products that refer or relate to underlying cryptoassets may fall within its regulatory scope. For example, cryptoassets designed primarily as a means of payment or exchange would not generally sit within the scope of FCA regulation. However, the FCA reiterates that whether a cryptoasset falls within scope of the regulatory perimeter will be fact-specific, depending on the particular cryptoasset instrument in question. Through its work with firms and monitoring market developments, the FCA has identified several potential risks deriving from cryptoassets, including price volatility, market manipulation, cryptoasset derivatives and money laundering. The FCA also is unclear whether the distributed ledger technology underlying many cryptoassets will be adopted broadly across securities markets or remain limited to niche uses.
In the BoE’s response, it begins by outlining why it believes that cryptoassets are unlikely to replace commonly used payment systems, due to the current failure to perform three key functions of money: as a store of value; a means of payment; and a unit of account. The BoE also confirms its view that cryptoassets do not currently pose a material threat to financial stability due to the relatively small scale of current cryptoasset use and the negligible exposures and linkages the UK financial system currently has to crytposassets. Nevertheless, due to the rapidly evolving market, industry and technology surrounding cryptoassets, the BoE states that it will continue to closely monitor developments. The UK Prudential Regulation Authority also is assessing how prudential regulations should apply if cryptoassets were held by banks or financial institutions, including whether or not additional requirements are necessary to cover associated risks, such as the extreme levels of volatility that cryptoassets exhibit.
The webpage is available here.
The BoE’s written evidence is available here.
The FCA’s written evidence is available here.