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The Bank of England calls for more cryptocurrency regulation

Bank of England (BOE) Governor Mark Carney has called for greater regulation of cryptocurrencies, calling the huge price moves and volatility “speculative mania.”

“The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system. Being part of the financial system brings enormous privileges, but with them great responsibilities,” Carney said.

He talked up the potential of the underlying technology, known as blockchain or distributed ledger technology, to improve accuracy, efficiency and security across payments, clearing and settlement.

But Carney said that the “speculative mania” around cryptocurrencies means further regulation is needed.

“A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system,” Carney said.

When asked if there would be a global push for regulation around digital coins, he said it would likely be on a country-by-country basis. “I would have a greater expectation for a series of national steps rather than some big coordinated approach.”

Expert opinion:

Jo Torode, a senior financial crime lawyer at Ropes & Gray:

  • “The key to successful regulation of cryptocurrencies is to ensure that regulation does not stifle innovation. Appropriate regulation would for the first time offer legal and regulatory protection to individual investors and high street customers seeking to benefit from the opportunities presented by cryptocurrencies, and the underlying blockchain technology.”
  • “This is the next stage in bringing cryptocurrencies and blockchain within the regulatory framework, speeding up the march towards legitimisation of an asset class that, until a few years ago, many law many enforcement agencies, believed had limited legitimate reasons for people to use. The flip side of this is that it will take more time and effort for those agencies to distinguish lawful transactions from those predicated on illegal activity.”
  • “As crytocurrencies become increasingly interlinked with the mainstream financial services industry it is inevitable that certain wrongdoers will seek to use them as a means to hide illicit proceeds in the monetary system. Indeed Europol have estimated that 4% of all criminal proceeds in Europe are currently being laundered through cryptocurrencies – or put it another way $5.5 billion (£4 billion) in illegal money.”
  • “Regulation particularly for money laundering purposes will therefore likely make cryptocurrencies more attractive to certain mainstream and regulated investors looking to fit a new and potentially profitable means of trading within their existing regulatory framework.”
  • “Appropriate and thoughtful regulation will facilitate the better exploration of the opportunities that blockchain – the technology underlying cryptocurrencies – offers to the financial services and technology sectors in London, in particular the thriving London fintech market, particularly post-Brexit.”
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