Bank of England's Bailey repeats dire crypto warning: Be prepared to lose all your money

·4 min read
Bank of England governor Andrew Bailey said crypto assets have no intrinsic value. Photo: Dan Kitwood/WPA Pool/Getty
Bank of England governor Andrew Bailey said crypto assets have no intrinsic value. Photo: Dan Kitwood/WPA Pool/Getty

Bank of England (BoE) governor Andrew Bailey has warned crypto investors they could lose all their money as he said unbacked crypto assets have no intrinsic value.

"If you want to invest in these assets, okay, but be prepared to lose all your money," Bailey told the the public accounts committee (PAC) on Monday.

He added: "People may still want to buy them because they have extrinsic value ... people value things for personal reasons. But they don't have intrinsic value.

"This morning we have seen another blow-up in a crypto exchange."

Speaking to MPs on the committee, he also said artificial intelligence tools (AI) could potentially be a means to create automatic controls on suspicious cryptocurrencies. Bailey said that there are a lot of bad actors in crypto world and AI could be harnessed to automatically weed them out instantaneously.

Bailey's comments came as bitcoin and other cryptocurrencies are collapsing in price after Binance temporarily halted all withdrawals, citing "extreme market conditions".

The world's largest crypto token bitcoin (BTC-USD) hit an 18-month low, tumbling as much as 17% in under 24 hours to $22,603 (£18,540), and is down more than 49% this year.

The second-largest crypto, ether (ETH-USD) was down 17% to $1,213, its lowest level since February last year.

Read more: Crypto: Binance 'temporarily' pauses bitcoin withdrawals as market collapses

The BoE chief was grilled by MPs on the PAC over his role in the British Steel Pension Scheme (BSPS) scandal when he was at the helm of the UK's financial regulator.

Bailey has defended some of the action taken by the Financial Conduct Authority at the height of a pension scandal that affected thousands of workers in the steel industry.

He was CEO of the FCA from 2016 to 2020, when it was revealed that thousands of steelworkers had been misadvised to transfer out of their defined benefit (DB) pension scheme.

When questioned by Nick Smith MP on whether the FCA introduced a ban on continent charging too late, Bailey defended the delayed ban, which fuelled pension transfer mis-selling.

Continent charging is where clients pay for the advice if they go ahead with a pension transfer.

"We were looking at the wider market and the evidence was the alternatives were associated with mis-selling as well," he said. "FCA was not wrong to do detailed file review work so the compensation review could be more robust."

According to the FCA, 641 companies were charging fully contingently, compared to 373 which charged non-contingently. There were 335 firms which were excluded as they used a mix of charging structures.

Read more: UK's dying steel industry in dire need of clean tech

In 2017, when Tata Steel, British Steel’s owner, was in financial difficulty, BSPS members were asked to make decisions about their pensions as part of a restructure of the scheme.

About 8,000 members ended up transferring out of the scheme, with transfers collectively worth about £2.8bn. However, concerns about the suitability of the transfers soon came to light.

This led to an intervention from the financial watchdog, resulting in a number of advice firms halting their transfer advice service, while others went bust.

The fiasco created a mountain of liabilities, which lawyers believe could end up costing up to £300m.

When asked if it is acceptable for one firm to have been fined in the five years since the BSPS first erupted, Bailey said he can't comment. Around 30 enforcement cases have been under way for around four years.

Under pressure, Bailey agreed more enforcement resources could have been directed to deal with unscrupulous advisers targeting BSPS members, adding those resources would have had to come from somewhere else.

Read more: Pensioners warned not to splurge retirement funds on cruises and hotels

In March, the National Audit Office (NAO) said that the FCA, then run by Bailey, had limited knowledge of the market at the time.

It concluded 263 pension scheme members lost £18m of redress to date because of financial advisers going into liquidation and the limits to current compensation provided.

While the total loss of each steelworker is not known, the average individual loss for claims made to the Financial Services Compensation Scheme was £82,600.

Watch: What are the risks of investing in cryptocurrency?

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