FTX Crisis Shows Need for Regulatory Framework for Cryptos: Bank of England

The inclusion of cryptocurrency exchange FTX shows the need to bring the crypto world within a regulatory framework, Bank of England Deputy Governor Jon Cunliffe said on Monday.

FTX, which has filed for US court protection, said it owes 50 major creditors about $3.1 billion (roughly Rs. 25,350 crore).

“Although the crypto world, as demonstrated during the crypto winter last year and last week’s FTX implosion, is not yet large enough or connected enough to mainstream currencies to threaten the stability of the financial system, its links with mainstream finance have developed rapidly, said Cunliffe.

He added that the FTX tragedy highlighted the need for regulators to put in place stronger controls as soon as possible.

“We shouldn’t wait until we are big and connected to develop the regulatory frameworks needed to prevent a crypto shock that could have a major disruptive impact,” Cunliffe told the Warwick Business School event.

Currently, crypto firms in Britain only have to demonstrate that they can put in place adequate controls to stop money laundering, although many firms have had license applications rejected by UK regulators.

Britain is approving a new financial services and markets law that will introduce regulation of stablecoins, a cryptoasset backed by a currency-like asset, and the marketing of cryptoassets in general.

Cunliffe said the BoE will set up a public consultation to issue regulations for stablecoins detailing how coinholders’ claims to issuers and funds should be structured to deliver redemptions in line with commercial bank money.

“The FTX example underscores how important these factors are,” Cunliffe said.

The Ministry of Finance will soon discuss extending investor protection, market integrity and other regulatory frameworks including the promotion and trading of financial products in activities and organizations involving crypto assets, he added.

Separately, the BoE and the Treasury are looking at the potential of the digital pound.

“Our aim is to ensure that new things happen but under a framework where risks are properly managed,” said Cunliffe. “The events of the past week provide a powerful indication of why that is important.”

© Thomson Reuters 2022

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