Bank of England Calls for More Regulations Amidst FTX Saga
The FTX exchange collapse has revealed a lot of things about the crypto industry. One of these has been the danger of it being underregulated in a lot of aspects. Once the news broke, crypto lovers and critics alike noted how the reckless behaviour of FTX management went unchecked due to under-regulation.
Now, Sir Jon Cunliffe, the deputy governor for financial stability at the Bank of England, has spoken up about the situation. According to him, more regulations are needed to protect investors and prevent this sort of scenario from repeating itself.
The Need for Regulations
These statements were made during a recent event at the Warwick Business School in which Sir Jon touched on the state of the crypto industry. According to him, the industry is not yet big enough to affect the ‘traditional’ financial system though it is developing greater links with it.
“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,” he said.
At the same time, Sir Jon noted that regulators should not sit by and wait for the links between the two to become strong enough that a collapse such as the FTX saga could affect it. Currently, the losses associated with FTX are tallied at least $3.1 billion to its top 50 creditors. Several crypto companies that had exposure to FTX have also had to adjust their operations, with some suspending customer withdrawals entirely. If links between the crypto world and traditional finance were bigger, so would the impact be.
As such, Sir Jon believes that it is imperative that the UK government implement more regulations for the crypto industry before it becomes too big and too complex to regulate properly.
“The experience in other areas of digitalisation has demonstrated the difficulty of retrofitting regulation on new technologies and new business models after they have reached systemic scale,” he said.
Sir Jon also touched on the ongoing development of a potential central bank-issued digital pound. He explained that this development is being guided by trends that are seen in local payments, including the reduced use of cash and the digitization of everyday life.
As he explained, cash is needed to make sure that “all forms of commercial bank money in the UK have to be redeemable in cash – Bank of England money – on demand in cash and without loss of value.”
With the current trajectory of digital payments, a digital pound token might be needed to fulfil this function, he concluded.
New Regulations Coming?
One upside to the FTX saga is that regulators around the world are looking more closely into putting laws in place that will prevent a repeat. Regulators in South Korea are currently cracking down on exchanges issuing their own tokens and now, in Europe, regulators are looking towards new laws.