Bank of England’s deputy governor for financial stability, Sir Jon Cunliffe, has warned that cryptocurrencies are “very vulnerable to sentiment and prone to collapse.” He urged regulators to “get on with the job” and regulate crypto under the principle of “same risk, same regulatory outcome.”
Bank of England’s Cunliffe on Crypto Regulation
Sir Jon Cunliffe, Deputy Governor for Financial Stability at the Bank of England (BOE), discussed the risks and regulation of cryptocurrencies at the residence of the British High Commissioner in Singapore this week.
The Bank of England executive cautioned:
Financial assets with no intrinsic value … are only worth what the next buyer will pay. They are therefore inherently volatile, very vulnerable to sentiment and prone to collapse.
He explained that some crypto assets are purely speculative, without any backing, stating that bitcoin, for example, has nothing behind it. He also reiterated his earlier warning that if you invest in crypto assets, you should “be prepared to lose all your money.”
The British central banker added the recent volatility in crypto markets has not posed a risk to the overall financial system, noting that crypto may not be “integrated enough” into the rest of the financial system to be an “immediate systemic risk.”
However, saying the lines between crypto and the traditional financial system will “become increasingly blurred,” Cunliffe said that without action, systemic risks would emerge, particularly if crypto activity and its connection to banks and ‘other markets continue to grow. He stressed that regulators need to “get to work” and bring crypto into the “regulatory perimeter.”
Cunliffe opined:
The interesting question for regulators is not what will happen next to the value of crypto assets, but what do we need to do to ensure that … prospective innovation … can happen without giving rise to increasing and potentially systemic risks.
Crypto Regulation Should Follow “Same Risk, Same Regulatory Outcome” Principle
The Bank of England’s Deputy Governor for Financial Stability stressed that crypto regulation “must be based on the iron principle of ‘same risk, same regulatory outcome’.” He continued:
Implicit in our regulatory standards and frameworks are the levels of risk mitigation we have judged necessary.
“Where we cannot apply the regulations in exactly the same way, we need to ensure that we achieve the same level of risk mitigation,” he described, proposing that activities be stopped “if and when for some crypto-related activities, this turns out to be impossible.”
Federal Reserve Vice Chair Lael Brainard similarly said last week that the crypto financial system is “susceptible to the same risks” as traditional finance. The Fed official added: “Future financial resilience will be greatly enhanced if we ensure the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome.”
Last week, Bank of England Governor Andrew Bailey also told UK lawmakers that cryptocurrencies have no intrinsic value, warning that unsecured crypto assets pose “very high risk”.
