Bank of Spain Governor Highlights Need for Fast Regulation in Defi and Crypto

Pablo Hernández de Cos, Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, explained that the cryptocurrency space and decentralized finance (defi) need operational regulation to avoid risks of financial instability. Hernández de Cos also noted that such an operational approach should bring the crypto-financial system into the realm of regulation before it proliferates.

Governor of the Bank of Spain talks about regulating cryptocurrencies

Bank of Spain Governor Pablo Hernandez de Cos, who also sits on the Basel Committee on Banking Supervision, explained his views on how he thinks cryptocurrencies should be regulated. In his speech at the 36th Annual General Meeting of the International Swaps and Derivatives Association, Hernandez de Kos explainedthat measures to regulate cryptocurrency and decentralized financial markets must be taken quickly before they can proliferate and affect the financial stability of the economic system.

On this issue, he said:

Despite this phenomenal growth, crypto-assets still represent only about 1% of total global financial assets, and banks’ direct exposure is relatively limited today. Nevertheless, we know that such markets have the potential to grow rapidly and pose risks to individual banks and overall financial stability.

In addition, the governor recommended a “proactive and forward-looking approach to regulation and supervision,” stating that a balance can be struck between welcoming these technologies and mitigating their risks.

Criticism of Cryptocurrencies and Defi

Hernandez de Kos also took the opportunity to criticize the current state of the cryptocurrency market, mentioning the crypto fever that currencies like dogecoin have caused among the cryptocurrency crowd and the impact that Elon Musk’s thoughts could have on these markets. He noted:

In his view, these are clear signs that the market is not as decentralized as they try to portray it, and that traits such as “strength” or “stability” cannot be attributed to cryptocurrencies.

This is not the first time the governor of the Bank of Spain has spoken about the dangers of introducing traditional financial institutions to cryptocurrencies. Back in February, Hernández de Cos also warned against this, saying that the increase in private banks’ exposure to cryptocurrencies could lead to new capital and reputational risks.

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