The Bank of England's governor, Mark Carney, called for tighter regulation of the cryptocurrency industry this week. Speaking at Edinburgh University's first Scottish Economics Conference via vide
The Bank of England's governor, Mark Carney, called for tighter regulation of the cryptocurrency industry this week. Speaking at Edinburgh University's first Scottish Economics Conference via video link, Carney outlined three regulatory paths: authorities could isolate crypto-assets, regulate them, or integrate them into the financial system. He rejected the approach China had chosen. That nation had opted for outright bans. Instead, Carney favored regulation to combat illegal activity, shield the broader financial system, and strengthen market integrity.
"The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system," Carney said. "Being part of the financial system brings enormous privileges, but with them great responsibilities. In this spirit, the EU and the U.S. are requiring crypto exchanges to meet the same anti-money laundering and counter the financing of terrorism standards as other financial institutions. In my view, holding crypto-asset exchanges to the same rigorous standards as those that trade securities would address a major underlap in the regulatory approach."
Kevin Murcko, CEO of the cryptocurrency exchange CoinMetro, saw something positive in the criticism. The speech was "highly negative and damning," Murcko noted, but it illustrated that "a legal financial framework for the crypto space is quickly becoming a reality."
Carney also challenged the viability of cryptocurrencies as money. Bitcoin had failed to fulfill its fundamental role, he argued. No major UK retailer accepts it as payment. In the United States, only a handful of the top 500 online retailers do. A recent study of small and medium-sized enterprises offered a different projection: those businesses expected digital currency payments to become standard on British high streets within two years.
The governor did not classify cryptocurrencies as an imminent threat to financial stability. The sector remains insignificant compared to global GDP. At current scale, it cannot destabilize the broader financial system. Different conditions could alter this assessment. "Looking ahead, 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," Carney cautioned.
CryptoUK, the UK's first self-regulatory trade body for the cryptocurrency industry, urged a different approach. The organization stressed that regulators must work with the industry to develop new frameworks rather than simply imposing old ones. "It is hugely important that policymakers and the Bank of England do not simply try to retrofit existing financial regulation onto this industry," a CryptoUK spokesperson said. "Instead we need close dialogue with regulators over the coming weeks and months to develop a new framework and seize the opportunities that this sector can offer. The UK has an exciting opportunity to become a world leader in the crypto economy and to attract new talent, particularly in a post-Brexit climate. Now more than ever is the time to show that our financial markets invite financial innovation through a regulated framework."
Carney dismisses bitcoin as a failed monetary experiment. That assessment should not prevent financial institutions from exploring innovation in the sector.
