Ernst & Young, a Big Four accounting company, has advised banks to adjust their regulatory perimeter in preparation for the upcoming releases of state-backed central bank digital currencies (CBDCs) and private stablecoins.

The need for a regulatory adjustment to help financial services organizations overcome business concerns amid the mainstreaming of digital assets and cryptocurrency was underlined in EY's "Global Regulatory Outlook" for 2022. While acknowledging the market's uncertainties, the report states:

"If customers can keep their money with a central bank, they do not need a retail bank, and firms will see their interest rate margins contract precipitously."

According to EY, Banking institutions should engage with regional and national regulators to anticipate crypto adoption and examine its impact on their business ahead of time. Digitalization, an alternative data source and digital assets were also identified as potential elements that could impact the regulatory environment.

EY warns banks to consider the consequences of the likely interaction between CBDCs and stablecoins for their balance sheets, highlighting the potential for CBDCs to complement or replace fiat currency. EY acknowledged the challenge in achieving regulatory certainty.The Central Bank of Bahrain (CBB) has cooperated with JPMorgan, an American investment bank, to pilot the country's CBDC test.

Using JPMorgan's blockchain and cryptocurrency unit Onyx, the CBB executed a digital payments test. CBB governor Rasheed Al Maraj commented on the event, saying that the trial was critical for the Bahraini government to address and potentially eradicate existing inefficiencies in the traditional cross-border payments market.

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