By Will McCurdy on Tuesday 22 November 2022
Jon Cunliffe feels regulations should come before the sector becomes any larger and more interconnected with the larger financial system.
Bank of England deputy governor Jon Cunliffe has said that the collapse of the crypto exchange FTX last week demonstrates the need for greater regulation in the space.
The move comes as UK Parliament works on expected revisions to the Financial Services and Markets Bill, after opting to include additional regulations governing cryptocurrencies in October.
As per reporting by Reuters, Cunliffe said that regulators shouldn’t wait until the crypto industry is “large and connected” with the rest of the financial services ecosystem to “develop the regulatory frameworks necessary to prevent a crypto shock that could have a much greater destabilizing impact”.
Talking to an audience at a Warwick Business School event, Cunliffe noted that he thought the crypto world may not be large enough at the present time to disrupt the financial system, but this could change in the future, citing the recent "crypto winter" of earlier this year.
The "crypto winter" refers to a widespread drop in the value of crypto assets prices which occurred in June and July of this year, which saw the price of bitcoin plummet almost 68% from its peak of nearly $69,000 in November 2021, linked to the collapse of stablecoin terraUSD and the implosion of Hong Kong-based Hedge Fund Three Arrow Capital.
The upcoming bill is set to provide clarity on a variety of issues, including the future position of stablecoins - cryptocurrencies whose value is tied to a particular fiat currency - as well crypto advertising to consumers.
This isn’t the first time that senior Bank of England staff has spoken out against the potential dangers of cryptocurrencies.
As far back as 2020 then Bank of England governor Andrew Bailey said that crypto-assets were unsuitable for consumers to use to buy and sell things, even going so far as say that cryptocurrencies “have no connection at all to money”.
It seems that the central bank might have changed its tune somewhat now, Cuncliffe told the audience that the bank is separately looking into a digital pound.
"Our aim is to ensure that innovation can take place but within a framework in which risks are properly managed," Cunliffe said according to the sources. "The events of last week provide a compelling demonstration of why that matters."