FTX collapse shows why crypto must be regulated before it threatens stability of financial system, says Bank of England official
- The Bank of England's deputy governor for financial stability spoke at a conference on Monday.
- He dubbed the collapse of FTX "the most spectacular failure to date in the crypto ecosystem."
The collapse of Sam Bankman-Fried's FTX shows crypto needs to be regulated before it grows big enough to threaten the whole financial system, a top Bank of England official said.
Jon Cunliffe, the bank's deputy governor for financial stability, spoke at a conference at Warwick Business School on Monday. He began by describing FTX's collapse as "probably the largest – and certainly the most spectacular – failure to date in the crypto ecosystem."
The crypto exchange filed for bankruptcy on November 11, having previously been worth $32 billion. Some have called it "crypto's Lehman moment," in reference to the 2008 financial crisis.
Cunliffe said that while crypto isn't large enough "to threaten the stability of the financial system, its links with mainstream finance have been developing rapidly."
He added that "we should not wait" to develop the laws "necessary to prevent a crypto shock that could have a much greater destabilizing impact."
Cunliffe told the conference that only anti-money-laundering regulations apply to crypto, but more would be done to protect investors. The Financial Services and Markets Bill is going through UK parliament, with a consultation to start in early 2023.
According to Cunliffe, the consultation would offer more detail on how the coinholders' claims on the stablecoin issuer and wallets should be structured.
In September, the British financial watchdog, the FCA, said in an official notice that FTX was operating in the UK without authorization. The notice added: "You are unlikely to get your money back if things go wrong."
The Bank of England has often warned about crypto, with its governor saying last year that it had no intrinsic value and is therefore too volatile.
In his speech on Monday, Cunliffe added that some crypto technologies could also improve the financial system. He spoke about the Bank of England developing its own "digitally native pound sterling" also known as a "central bank digital currency."
FTX did not immediately respond to Insider's request for comment. The Bank of England declined to comment.