FTX collapse shows need for cryptocurrency regulation, says British central bank

The FTX implosion underscores the need to bring the world of cryptocurrencies within the regulatory framework, Bank of England (BoE) Deputy Governor Jon Cunliffe said on Monday.

The platform, which has filed for bankruptcy protection in the United States, said it owes its 50 largest creditors nearly $3.1 billion.

“While the world of digital assets, as demonstrated during last year’s industry winter and last week’s FTX implosion, is not large enough or interconnected enough with mainstream finance to threaten the stability of the financial system, its links have developed rapidly,” said Cunliffe.

“We should not wait until it is big and connected to develop the necessary regulatory frameworks to avoid a cryptocurrency crash that could have a much greater destabilizing impact,” Cunliffe said at a Warwick Business School event.

Currently, cryptocurrency companies in the UK only need to show that they can implement sufficient controls to prevent money laundering, although many have had license applications rejected by the region’s Financial Conduct Authority.

Cunliffe said the BoE will set up a public consultation to detail stablecoin rules.

He also mentioned that cryptocurrency holders’ claims to the issuer and wallets should be structured to enable redemption like cash in traditional banks.

“The FTX example highlights the importance of these aspects,” said Cunliffe.

Separately, the BoE and Finance are looking into the potential of a digital pound.

Cunliffe said his initial view was that the FTX failure would have no potential timeframe implications for a digital currency. However, on reflection, he said the interconnected nature of the digital world was relevant.

“Our aim is to ensure that innovation takes place, but within a framework in which risks are properly managed,” he said. “The events of the past week provide a compelling demonstration of why this matters.”