The Bank of England laid down its plans for crypto regulation in the UK following the drastic instability from the “crypto winter.”
Deputy Governor Jon Cunliffe said the Bank would apply identical regulation to different financial services in the UK, regardless of how they are provided, if the risks presented by them are the same. As such, crypto activity that poses risks similar to traditional financial activities will be subjected to the same regulations as traditional financial activities.
Where regulation cannot be applied in the same way, the same level of risk mitigation should apply, he said.
“The extension of the regulatory framework to encompass the use of crypto technologies must be grounded in the iron principle of ‘same risk, same regulatory outcome,” Cunliffe said during a speech today at the British High Commission in Singapore.
“Given that the Bank of England is responsible for regulation and supervision of systemic payment systems in the UK, our intention is to apply the ‘same risk, same regulatory outcome’ approach in the UK.”
He urged for an international approach to this, saying it would only work if “carried forward across international standards” and that “those standards need to be incorporated into domestic regulatory regimes.”
Where risk cannot be mitigated and managed as necessary, such risky activities should not be allowed to proceed, he stated. “Regulators should continue and accelerate their work to put in place effective regulation of the use of crypto technologies in finance.”
Cunliffe’s views echo the Financial Stability Board’s on Monday as it also recommended that the “same activity, same risk, same regulation” approach be taken for crypto.
Cunliffe said the “crypto winter” underscores the need for regulation as crypto’s speed of growth and connection with traditional finance poses a risk, adding that the boundaries between the two could become “blurred.”
“A widespread collapse of crypto-asset valuations has cascaded through the crypto ecosystem and generated a number of high-profile firm failures,” he said, adding that most crypto assets were “inherently volatile, very vulnerable to sentiment and prone to collapse”, while dismissing claims of Bitcoin being a volatility and inflation hedge.