Huw Jones

LONDON (Reuters] – The Bank of England Governor Andrew Bailey told banks and other regulated financial companies that they need to be careful about cryptoassets while regulators establish new rules.

Bailey spoke at a conference and said that future regulations for cryptoassets, the BoE preferred term for financial instruments like bitcoin, would balance risk management with support for innovation and competition.

Following a meeting by the BoE’s Financial Policy Committee (FPC), he declared that “The FPC considers financial institutions should adopt these assets with an extra cautious and prudent approach until such a system is in place.”

The FPC stated that although no British bank has reported exposure to cryptoassets, several are offering a range of services such as custody or derivatives trading.

According to the FPC, crypto markets continue to expand rapidly. They have risen tenfold to $2.6 trillion in just one month since 2020, which is equivalent to 1% global financial assets.

Bailey stated that although it isn’t likely to pose a risk of financial instability today, Bailey believes it could.

Basel Committee global regulators of banking has made proposals to impose punitive capital costs on cryptoassets owned by banks.

Bailey says that it is important to consider the financial world beyond just banks when examining rules.

FPC stated, “Enhanced regulation and law enforcement frameworks are required, both nationally and globally, to affect developments in these fast growing markets.”

BoE doesn’t view Bitcoin or any other cryptocurrency as meeting the definition of currency. It reiterated its warning about cryptoassets having no intrinsic value, which could lead to investors losing all their investment.

British regulators believe that there are 2.3 million people in Britain who own bitcoin and other cryptoassets, however they only make up 0.1% of the country’s net financial wealth.

Last week, the Financial Conduct Authority stated that cryptoasset investments should not be covered by Britain’s Financial Services Compensation Scheme.