The Deputy Governor of the Bank of England, Jon Cunliffe, considers the supervision of DeFi companies urgent before they endanger the stability of the international financial system.
Discussion in the British Parliament of a bill that will allow regulators to implement a comprehensive regulatory framework for cryptocurrencies has just ended.
The recent collapse of cryptocurrency exchange FTX shows the urgent need to strictly regulate the cryptocurrency industry, Bank of England (BoE) Deputy Governor Jon Cunliffe warned Monday.
The official stressed that cryptocurrency trading must be subject to clear and precise rules by financial control agencies. Otherwise, unregulated digital money and companies will threaten the stability of the broader financial system, he said.
The fall of FTX, the world’s second-largest cryptocurrency trading platform by trading volume, which was owned by former billionaire San Barman-Fried, has deepened the crisis in the digital finance industry known as crypto winter.
In addition, this crisis revealed that there are serious flaws in the way that the main digital asset trading companies have been managing due to the lack of corporate controls and the misuse of client funds.
Greater Controls and Supervision
During a speech at a policy event, Cunliffe stressed the urgency of strengthening the supervision and control activities of DeFi companies before the stability of the global economy is seriously threatened.
According to the official, the digital finance sector is fortunately not yet “large enough” or interconnected enough with traditional finance to put the stability of the traditional financial system at risk.
But he warned that these links with the international financial system are developing very quickly.
“We should not wait until it is large and connected to develop the regulatory frameworks necessary to prevent a crypto shock that could have a much greater destabilising impact,” Cunliffe said.
The FTX liquidation, which is being executed by the liquidation unit appointed by the Bahamian regulator, is being overseen by the exchange’s current CEO, John Ray III. The veteran bankruptcy lawyer said last week that the company’s management failings were worse than those of bankrupt US energy company Enron in 2001.
Financial Markets and Services Bill
So far in Britain, financial regulators are only supervising cryptocurrency trading companies to prevent money laundering. However, they have not delved into the supervision of its administration and management.
UK lawmakers are currently pushing the government for the Financial Conduct Authority and the Prudential Regulation Authority to take the reins and oversee most of the cryptocurrency sector.
Treasury Financial Secretary Andrew Griffith introduced an amendment to the Financial Services and Markets Bill to Parliament, the discussion of which ended on November 3. Through this legal instrument, regulators will be able to develop a comprehensive regulatory framework for cryptocurrency trading.
According to Cunliffe, the BoE soon plans to hold a consultation on the possibility of extending investor protection guarantees, as well as on market integrity and other regulatory items for the digital asset sector.
On the Flipside
The aim of the Bank of England and UK regulators is to ensure that the process of innovation in the financial system moves forward. But it must be done within a regulatory framework that minimizes risks and makes innovation sustainable, Cunliffe suggests.
Why You Should Care
The FTX implosion has renewed interest from global regulators and legislators to discuss and approve regulatory frameworks for the crypto space as soon as possible. Everyone is aware that, although digital finance is a reality and a necessity, its regulation cannot wait.
You can read other articles related to the FTX crash and the regulation of cryptocurrencies at the following links: