The European Union is not alarmed at the growing use of crypto assets, but there is a "global need" for regulation around the space, EU Commissioner for financial services, financial stability and capital markets union Mairead McGuinness has said.
Speaking at the Financial Times and IDA Ireland European Financial Forum 2022, McGuinness warned that any new financial instrument could cause enormous problems "if we don't get to grips with it".
McGuinness told the forum that Europe has moved on the issue of cryptocurrencies and that in same Brussels is already ahead of the curve while acknowledging that proposals in the area need to be future focused.
"When you hear that people are taking financial advice on TikTok or through other social media platforms, or that young people are engaging with their pals in investing in various cryptocurrencies almost as a past time, it doesn’t sound alarming," she said.
"But of course the collective activities are alarming if they are not regulated, and this is why there is a global need for principles around the whole crypto space."
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She went on to say that it is important not to stifle the upsides of technology and finance, but "clearly there are risks and I think that is why the warnings coming."
She also questioned whether people investing in crypto assets were aware of the risks involved and that they could lose, and pointed out that if they aren't aware "we need to do something about that".
McGuinness added that the EU needs to understand the investment requirements and thought process of a younger generation and not be only guided by past experience. She said the EU is trying to future gaze and look for gaps in regulation as a result.
"But I don’t want to suggest that we are overly alarmed," she continued. "What I do want to say is that anything that is growing and unregulated can cause enormous problems if we don’t get to grips with it."
The Commissioner's comments come after the Financial Stability Board (FSB) on Wednesday expressed concern that the scale and structural vulnerabilities of crypto markets have the potential to cause significant disturbance to the global economy.
In a report, the Basel-based global watchdog of financial authorities in 24 countries estimated that crypto asset market capitalisation grew 3.5 times in 2021 to a value of $2.6tn (€2tn) and warned that financial institutions involved in crypto could see their balance sheets and liquidity affected "in unexpected ways".
"As in the case of the US subprime mortgage crisis, a small amount of known exposure does not necessarily mean a small amount of risk, particularly if there exist a lack of transparency and insufficient regulatory coverage,” it said, evoking memories of the 2008 financial crash.
