By
Chimamanda U. Martha
April 15th, 2024
The Bank of England has said that considering the current crypto mayhem, stricter market rules are essential in order to avoid any major risks to financial stability.
Amid the recent market turmoil, the UK central bank – Bank of England (BoE) – called for tougher and stricter rules in the crypto market in order to avoid ‘systematic risks’.
UK Central Bank Calls for Crypto Rules
The recent call comes amid the ongoing “vulnerabilities” in the market. In its recently published financial stability report 2022, the UK central bank pointed out the sharp fall in crypto market valuations. Over the last eight months, the cryptocurrency market has eroded more than $2 trillion of investors’ wealth.
However, it said that the current market crash still doesn’t pose any major risks to Britain’s financial stability. However, the British central bank called for stricter rules to protect the broader financial system from the crypto mayhem. In its report, the Bank of England wrote:
“A number of vulnerabilities were exposed within cryptoasset markets similar to those exposed by past episodes of instability in more traditional parts of the financial system. These events did not pose risks to financial stability overall. But, unless addressed, systemic risks would emerge if cryptoasset activity, and its interconnectedness with the wider financial system, continued to develop”.
The British central bank has been actively monitoring all the developments taking place in the crypto space. Earlier in April, the UK government also announced plans of making the country a global technology hub. It also planned to recognize stablecoins as a valid form of payment.
UK Government Seeks Public Commentary on DeFi Taxation
In another major development, the UK government is seeking public commentary and guidance on the taxation of decentralized finance (DeFi) activities. The goal is to reduce any administrative burdens and costs for taxpayers. Furthermore, it seeks to experiment with whether the DeFi taxation rules can be aligned with the underlying economics of the transactions involved.
However, the UK government is only looking to work on the matter of taxation for DeFi lending and staking. The official announcement reads:
“DeFi lending and staking encompasses a range of activities that reward users who deposit cryptoasset tokens into a pool or lend them to other individuals or platforms for a certain period to earn passive income returns often described as interest”.
Interested parties can reach out to Her Majesty’s Revenue and Customs (HMRC) by August 31st. For consultations, the HMRC has invited investors, professionals, and firms involved with DeFi activities.