Andrew Bailey oversaw the fintech friendly UK regulator the FCA before heading the central bank.
New global regulation is needed for payments in the face of rapidly increasing innovation, according to Bank of England governor Andrew Bailey, who says crypto-assets such as bitcoin are unsuitable for consumers to use to buy and sell things.
Speaking (digitally) to the US-based think tank the Brookings Institute, said innovation is increasingly challenging regulators’ ability to ensure systemically risky firms are operating safely.
Whilst he was widely seen as friendly to financial innovation Bailey is sceptical of the growing use of new payment systems operating outside of regulation.
“We have reached the point in the cycle of innovation in payments where it is essential that we set the standards and thus the expectations for how innovation will take effect,” he said.
“We must...set standards early on so that innovation can take place with confidence on what will be required. It should not happen the other way round, with the standard setting playing catch up,” he added.
“The answer is not to strangle innovation, and it does therefore require a strong dialogue between the parties, which I think we have.”
Crypto assets such as bitcoin, Bailey says, “have no connection at all to money”.
“They may have extrinsic value – you may like to collect them for instance, and as such, they are a highly risky investment opportunity. Their value can fluctuate quite wildly, unsurprisingly. They strike me as unsuited to the world of payments, where certainty of value matters,” he said.
Bradley Rice, senior regulatory lawyer at law firm Ashurst, says there could also be hurdles in the way for e-money providers
“[This could be] in the form of increased regulatory protection to bring certain e-money providers more in line with deposit takers,” he said.
Rice says the BOE is positioning itself at the forefront of the development of Central Bank Digital Currencies "
"Ultimately, there is no way a Central Bank or Government is going to give up control of monetary policy and its reserve currency to the private sector, especially if they are not even located in the UK (or anywhere, with some decentralised systems). This is a marathon and we have a long way to go, but the Bank may be forced to sprint if it doesn't keep pace."
Here you can read the full speech 'Reinventing the wheel (with more automation)'.