The Bank of England’s deputy governor Sir Jon Cunliffe has doubled down on the need to regulate cryptocurrency in the wake of FTX’s collapse, despite concerns from some corners of traditional finance that the implosion shows the sector is too dangerous to legitimise through rulemaking.
“Whether or not one thinks it is sensible to invest or trade in the highly speculative assets that make up most of the activity in the crypto world, investors should be able to do so in transparent, fair and robust marketplaces, with the protections that they would get in conventional finance,” Sir Jon told a digital assets conference at the Warwick Business School on 21 November.
The comments come days after the dramatic failure of FTX sent shockwaves through the crypto industry and hit major players in traditional finance such as BlackRock and Sequoia Capital.
On 17 November the company’s new CEO, John J Ray, said he had never seen anything as bad as FTX in 40 years of restructuring work, which included handling Enron’s bankruptcy.
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A fresh filing on 19 November revealed FTX owes its 50 largest creditors about $3.1bn. The filing did not name the creditors. Two creditors are each owed more than $200m.
Despite this, Cunliffe said crypto is not yet at “systemic size”.
But he added that regulators “should not wait until [the crypto world] is large and connected to develop the regulatory frameworks necessary to prevent a crypto shock that could have a much greater destabilising impact”.
Cunliffe added that “the very instability and riskiness of the world of unregulated crypto finance, most recently demonstrated by FTX, will in the end ensure that the sector cannot grow”.
READ The Fintech Files: FTX fallout, MPs make Binance squirm, and crypto sector full of ‘f****** sociopaths’
He noted that some people considered crypto too risky to legitimise with a regulatory framework. However, he added that aspects of the wider crypto world, such as tokenising assets on the blockchain, were unlikely to go away, and that the sector should therefore be regulated to “foster innovation”.
“People do not fly in unsafe aeroplanes. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards,” he said.
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