The Bank of England Financial Policy Committee (FPC) and other UK regulators are evaluating cryptocurrency after the publication of Financial Stability Reports related to cryptocurrencies and decentralized finance (DeFi).

The Bank of England report was published on Thursday, and the Financial Conduct Authority (FCA) together with the bank’s Prudential Regulatory Authority (PRA) released documents that referred to each other at the same time.

In its 40-page report, the FPC said that cryptocurrencies and DeFi pose a “limited” risk to the stability of the UK financial system, but saw the risk increase “as these assets become more linked to the broader financial system”. In response, the FPC promised to assess these risks and make recommendations.

The report notes that current regulations are sufficient to reduce the risk when cryptocurrencies serve the same purposes as traditional finance. The FPC “welcomed the Ministry of Finance’s proposal to regulate stable currencies, including a proposal to involve a bank in the process, and expressed its support for international efforts to regulate DeFi applications.

The FPC advised financial institutions to “use extra caution and caution with any distribution” of crypto or DeFi assets until the regulatory framework becomes more robust. In this context, PRA Deputy Governor and CEO Sam Woods wrote a “Dear CEO” letter to banks, insurance companies and designated investment companies about the impact of cryptocurrencies, with direct reference to the FPC report and the FCA report.

Many of Woods’ letters remind recipients of current guidelines and regulations in light of their growing concern. The letter also requests that a survey on cryptocurrencies and organizations’ current plans for this year be completed by 3 June.

The FCA message reminded regulated companies of their “current obligations when interacting with or being exposed to cryptocurrency and related services.” Review a list of these obligations, including a “clarity for the client” about regulation and risks, as well as supervisory and guardian considerations.

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The Financial Conduct Authority (FCA) has paid special attention to anti-money laundering (AML) and registration, citing a comprehensive list of unregistered firms trading in cryptocurrencies. The agency has examined a number of these institutions. All unregistered and provisionally registered crypto companies must register by March 31, otherwise they may close in the UK.

This was not the full scope of the Bank of England’s crypto-related documents released on Thursday. Responses to the Bank of England’s discussion paper on new forms of digital money also emerged. He referred to a discussion paper the bank published last year on central banks’ digital currencies (CBDC). The Federal Trade Commission indicated that the bank and the Treasury Department will “initiate consultations” on the central bank’s digital currency this year.

Source: CoinTelegraph