Bank of England “FTX collapse shows need to regulate crypto”
Jon Cunliffe, Deputy Governor at The Bank of England released a statement on Monday, stating that the implosion of the cryptocurrency exchange FTX shows the need to bring the crypto world within the existing regulatory framework. This follows the filing for bankruptcy in the US by FTX, owing its 50 biggest creditors nearly $3.1 billion, in what will be the biggest institutional and consumer fraud scandal since the collapse of Enron.
Mr. Cunliffe, in his role at The Bank of England, is concerned primarily with the stability of the financial system - "While the crypto world, as was demonstrated during last year’s crypto winter and last week’s FTX implosion is not at present large enough or interconnected enough with mainstream finance to threaten the stability of the financial system, its links with mainstream finance have been developing rapidly,". Replete with failures and theft, one would expect those in authority to take more notice as the effects of failure off-ramp into the offline world and the mainstream banking system.
For supporters of crypto, who wax lyrical of the anti-establishment value in having a decentralised monetary system free from the control of central authority, the continue failings, theft and losses associated with crypto are only the visible effects of crime that also affect the mainstream banking system. Crypto evangelicals disagree that the level of crime is an indicator at all. Instead it is a product of transparency that the results of criminal action is visible, with the suggestion that the levels of theft and fraud in the mainstream banking system being hidden.
Currently, crypto firms in Britain only have to show they can put in place sufficient controls to stop money-laundering, though many firms have had licence applications rejected by the UK's Financial Conduct Authority (FCA). The trend is for increasing regulation and crypto will also follow on this path, with increasing requirements for regulatory controls over financial interactions with the blockchain.
Britain is close to approving a new financial services and markets law that will introduce regulation for stable-coins, a Cryptoasset backed by an asset such as a currency and marketing of cryptoassets generally. The question is of course if consumers will move to stable-coins, and to this question, greater regulation can only help to make the technology more mainstream.
Jane Moore, head of payments and digital assets at the FCA, said that crypto will, one way or another, shape the future of financial services and therefore consumer protection must be considered. Cunliffe said his initial view had been that FTX's failure would have no implication on the potential timeframe for a digital currency. However, on reflection, he said that the interconnected nature of the digital world was relevant.
"Our aim is to ensure that innovation can take place but within a framework in which risks are properly managed," Cunliffe said. "The events of last week provide a compelling demonstration of why that matters."
