Sir Jon Cunliffe (deputy governor for financial stability, Bank of England) discussed cryptocurrency regulations and risks this week at the residence of the British High Commissioner in Singapore.
An executive at the Bank of England warned:
Assets that have no intrinsic value…are only worth what the next buyer pays. They are inherently volatile and very susceptible to sentiment, making them vulnerable to falling apart.
He stated that crypto assets can be purely speculation and have no backing. Bitcoin, for instance, is an example of this. He reiterated his earlier warning that crypto assets can be risky and you should expect to lose everything.
According to the British central banker, the volatility in crypto markets is not a threat to the overall financial system. He also noted that crypto may not have been ‘integrated enough” into the financial system to pose an ‘immediate systemic danger.
Cunliffe stated that the borders between crypto and traditional financial systems will “increasingly blurred”, and that systemic risks could emerge if there is continued growth in crypto activity and its connections to other markets. Cunliffe stressed the need for regulators to “get on with their job” and bring crypto within the “regulatory perimeter”.
Regulators need to ask themselves not just what will happen to crypto assets’ value, but how can we ensure that potential innovation does not lead to systemic and increasing risks.
The ‘Same risk, Same outcome’ principle should be followed when regulating cryptography
The Bank of England deputy governor of financial stability stressed that crypto regulation must be based on the iron principle of “same risk, equal regulatory outcome.” He continued:
The levels of risk mitigation that we have deemed necessary are implicit in our regulatory frameworks and standards.
He stated that regulation cannot be applied in the exact same manner. Therefore, it is important to ensure the same level risk mitigation. He suggested that certain activities be stopped ‘if and whenever this is not possible for crypto-related activities.
Lael Brainard, Vice Chair of the Federal Reserve, similarly stated last Wednesday that crypto finance is’susceptible the same risks’ to traditional finance. A Fed official said that future financial resilience would be enhanced if the regulatory perimeter included the crypto financial system and reflected the principle of the same risk, the same disclosure, the same regulatory outcome.
Andrew Bailey, Bank of England Governor, also warned U.K lawmakers last week that cryptocurrencies do not have intrinsic value and that unbacked crypto assets pose a high risk.