Ernst & Young advises banks to ‘prepare for what’s to come’

Big four accounting firm Ernst & Young has advised banks to change their regulatory perimeter in response to the upcoming launch of state-backed central bank digital currencies (CBDCs) and private stablecoins.

Ernst & Young’s 2022 Global Regulatory Outlook highlights the need for policy changes to help financial services firms overcome business uncertainty as digital assets and cryptocurrencies mainstream. While acknowledging the uncertainty in the digital asset market, Report statement:

“If customers can keep their money in the central bank, they don’t need retail banks, and businesses will see their interest rate margins shrink sharply.”

EY advises banking firms to work with regional and national regulators to anticipate possible cryptocurrency adoption and proactively assess the impact on their businesses. The report also identified digitization (alternative data sources and digital assets) as a potential factor affecting the regulatory environment:

“The macroprudential or international impact of major currencies with retail coins can be very important for dollarization in retail banks and smaller economies. For this reason, most central banks are likely to pursue wholesale versions.”

EY highlighted the potential of CBDCs to complement or replace fiat currencies, and warned banks to consider the impact on their balance sheets in a possible interaction between CBDCs and stablecoins. Acknowledging the difficulty in obtaining regulatory clarity, EY concluded:

“By understanding the broad direction of regulation, companies can take proactive steps to prepare for what’s to come.”

related: Central Bank of Bahrain Trials JPMorgan’s Blockchain and Tokens

Just last week, the Central Bank of Bahrain (CBB) partnered with US investment bank JPMorgan to pilot a CBDC test in the country.

As Cointelegraph reported, CBB completed a digital payments test using JPMorgan’s blockchain and cryptocurrency arm Onyx. Citing developments, CBB Governor Rasheed Al Maraj said the trial is critical for the Bahraini government to address and potentially eliminate existing inefficiencies in the traditional cross-border payments industry.