Cryptocurrencies such as Bitcoin may be facing a “regulatory crackdown”, as Bank of England governor Mark Carney has said that the time has come “to hold the crypto asset ecosystem to the same standards as the rest of the financial system”.
In a speech on Friday, Mr Carney voiced concerns surrounding the “inherently risky” cryptocurrencies and said that authorities needed to decide whether to isolate, regulate or integrate crypto assets and their associated activities.
To regulate elements of the crypto-asset ecosystem
“A better path would be to regulate elements of the crypto assets ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system,”
Mr Carney told an audience at the Scottish Economics Conference at Edinburgh University.
“Being part of the financial system brings enormous privileges, but with them great responsibilities”.
Some jurisdictions have chosen to ban crypto assets
Some jurisdictions have already banned crypto assets, including Bangladesh, Bolivia and Morocco.
China has shut down Bitcoin exchanges and made initial coin offerings illegal.
EU regulators have warned of dangers of cryptocurrencies
No risks to financial stability
Mr Carney said that at the present time, he did not think crypto assets appeared to pose “material risks” to financial stability, as they are “small relative to the financial system” and major UK financial intuitions currently have “minimal exposures” to the crypto asset ecosystem.
Financial stability risks could rise in the future
However, he said that in the future, financial stability risks could rise if
“retail participation significantly increased or linkages with the formal financial sector grew without material improvements in market integrity, anti-money laundering standards and cyber defences”.
“Authorities are rightly concerned that given their inefficiency and anonymity, one of the main reasons for their use is to shield illicit activities. This cannot be condoned. Anarchy may reign on the dark web, but in the UK it’s just a song that your parents used to listen to”.
FSB will report to G20 on implications
Carney confirmed that the Bank of England’s FPC (Financial Policy Committee) was currently “considering the risks” posed to UK financial stability and said that the Financial Stability Board (FSB) would report to the G20 in Argentina later this month on “the financial stability implications of crypto-assets.”
Regulating could catalyse innovations to serve the public better
Carney told the audience that although the crypto-assets in their digital wallets were “unlikely to be the money of the future”, bringing crypto-assets into the “regulatory tent could potentially catalyse innovations to serve the public better”.