The UK regulators—including the Bank of England (BoE), the Prudential Regulatory Authority, the Financial Conduct Authority (FCA), and the Financial Policy Committee (FPC)—published materials on cryptoassets, central bank digital currency (CBDC), and systemic risk survey, along with the summary of the March meeting of FPC.
FPC decisions. Below are the key highlights of FPC meeting discussions:
- FPC is maintaining the UK Countercyclical Capital Buffer (CCyB) rate at 1%, with the rate expected to come into effect from December 13, 2022, in line with the twelve-month implementation period. FPC would expect to increase the rate further to 2% in the second quarter of 2022.
- BoE will return to its annual cyclical scenario (ACS) stress testing framework in 2022, following two years of pandemic crisis-related stress testing. However, in light of uncertainty related to the Russian invasion of Ukraine and to help lenders focus on managing the ongoing financial markets disruption associated with the invasion, FPC and the Prudential Regulation Committee (PRC) will delay the launch of the 2022 ACS, with the revised timeline to be announced during the second quarter of 2022.
- BoE and FCA intend to carry out further work on the regulatory framework for stablecoins and, subject to the outcome of HM Treasury’s consultation, BoE intends to consult on its proposed regulatory model for systemic stablecoins in 2023.
Cryptoasset developments. FPC published a report on cryptoassets and decentralized finance and welcomed the Dear CEO letter issued by PRA reminding firms of their obligations with respect to cryptoasset exposures. FPC also welcomed the FCA statement reminding firms of their obligations when interacting with or exposed to cryptoassets. The report on cryptoassets and decentralized finance assesses the role of cryptoassets and associated markets and activities in the UK and globally and how this could develop as these markets continue to evolve. Finally, FPC welcomed HM Treasury’s proposal for a regulatory regime for stablecoins, including bringing systemic stablecoins into the regulatory remit of BoE.
CBDC initiatives. BoE published a summary of responses to its discussion paper on new forms of digital money. In 2022, BoE and HM Treasury will launch a consultation setting out their assessment of the case for a UK CBDC, including the merits of further work to develop an operational and technology model for a UK CBDC. The 2022 consultation will inform a decision on whether the authorities are content to move into a "development" phase which would span several years. A technical specification would follow the consultation explaining the proposed conceptual architecture for any CBDC. This could involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC. If the results of a development phase conclude that the case for CBDC is made, and that it is operationally and technologically robust, then the earliest date for launch of a UK CBDC would be in the second half of the 2020s. In yet another development, BoE and the Massachusetts Institute of Technology (MIT) agreed to collaborate on a twelve-month research project on CBDC. Both entities will partner to explore potential technical challenges, trade-offs, opportunities, and risks involved in designing a CBDC system.
Systemic risk survey results. BoE also published the results of the systemic risk survey for the first half of 2022. The survey found that confidence in the stability of the UK financial system over the next three years has reduced slightly over the past six months but remains relatively high. Cyber-attack (65% of respondents) remains the most cited risk to the UK financial system and the most challenging for firms to manage, with many respondents also citing geopolitical (40%) and pandemic (29%) risks as challenging. Only 15% of the respondents cited climate risk as most difficult to manage as a firm.
- Summary of FPC Meeting
- FPC Report on Cryptoassets
- Joint Statement on Cryptoassets
- Dear CEO Letter from PRA
- FCA Statement on Cryptoassets
- Responses to CBDC Discussion Paper
- Press Release on CBDC Collaboration
- BoE Systemic Risk Survey
Keywords: Europe, UK, Banking, Securities, Regulatory Capital, Basel, Systemic Risk, Stress Testing, Financial Stability, Cryptoassets, Decentralized Finance, CCyB, Systemic Risk Survey, Regtech, CBDC, Stablecoins, FPC, FCA, PRA, BoE
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