Sir Jon Cunliffe, the Bank of England’s deputy governor, has called on financial regulators worldwide to pursue crypto rules urgently.
He acknowledged the rapid growth of the cryptocurrency industry at the SIBOS conference on Wednesday. SIBOS is a yearly financial and banking conference arranged by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).
In his speech, the executive noted that it’s up to financial stability authorities to create a resilient cryptosystem. Such a system would ensure that when consequent losses and price corrections occur, there’s no damage to the real economy or the financial system as a whole.
The rapid growth of cryptoassets
The alarming growth of the crypto space was a central taking point in his speech. He mentions that cryptoassets have grown by around 200% in 2021, from only $800 billion to $2.3 trillion. The increase is a massive jump from only $16 billion five years ago.
Cunliffe emphasized that such rapid growths in the financial system require financial authorities to sit up and take notice because the space is largely unregulated. He called on regulators internationally and, in many jurisdictions, to carefully consider what could happen and whether action is necessary.
The crypto world is already connecting to the traditional financial system. Some core financial market and wholesale finance firms already have their toes in the water. International banks are looking at or have started trading cryptoassets futures. Following client demand, some are even providing cryptoassets investments as more people want to buy bitcoin and expand their portfolios.
Caution Against Overreaction
Cunliffe further cautioned against overreaction from regulatory authorities and the crypto community at large. He called on regulators not to classify cryptocurrencies as dangerous simply because they’re different or unfamiliar.
The executive quickly noted that new players, technology, and innovation have been vital in driving improvements and making financial services more resilient throughout history. Crypto technologies can radically improve financial services, tackle longstanding inefficiencies, frictions, and barriers to entry.
He also pointed out that while cryptocurrencies still pose limited risks to financial stability, current applications are a cause for concern. There’s no intrinsic value in cryptoassets, meaning commodities or assets don’t back them, and they have significant price corrections vulnerabilities.
He expects such risks to multiply as the crypto space continues to expand and develop at an unprecedented rate. From the perspective of regulation and financial stability, what matters is how crypto technology is used and for what purpose.
How large the present risks can grow depends on the speed and nature of the response by supervisory and regulatory authorities.
