The British particularly like cryptocurrencies and make extensive use of them, so much so that earlier this year, Chancellor of the Exchequer Rishi Sunak announced a push to make the UK a ‘crypto hub’, obviously within the framework of healthy realism and building the infrastructure to prepare to supervise cryptocurrency issuers and traders in a way that adequately protects investors.

The UK Financial Policy Committee published a report on financial stability, which highlights how the Ukraine-Russia war, supply chain difficulties and tightening monetary policy are squeezing UK households and businesses.

Prices of riskier assets, including cryptocurrencies, have fallen and could continue to fall in the face of slower economic growth, according to the bank.

The multi-agency body concluded that cryptocurrency, at present, does not pose a risk to the UK’s financial stability, although according to the report – the increasing integration of cryptocurrency with traditional finance, could become a problem in the future, as greater coupling between cryptocurrencies and traditional financial markets will pose systemic risks – if allowed to proceed unchecked.
Accordingly, the FPC calls for the development of comprehensive regulatory and legislative frameworks to address developments in the sector.

The FPC then took a stance on stablecoins and reiterated that they should have a stable value and be redeemable on a one-off basis with fiat money.

The UK Government’s openness to the sector can also be seen in its handling of ‘unhosted wallets’, which are excluded from the traceability of crypto transactions, in contrast to the new anti-money laundering rules set by the European Union.

In this regard, the Treasury stated that:

“The Government does not agree that transactions with ‘unhosted wallets’ should automatically be considered high-risk; many people who hold crypto assets for legitimate purposes use these wallets by taking advantage of the security benefits (e.g., cold storage of the wallets), and there is no valid evidence that these wallets present a disproportionate risk of being used in illicit finance.”