The Bank of England has published a speech by Sir Jon Cunliffe (Deputy Governor for Financial Stability) reflecting on the collapse of cryptocurrency exchange, FTX. He also spoke to the ongoing work on cryptoasset regulation (including stablecoins) and central bank digital currency (CBDC).
Some of the points we found interesting from the speech:
- On the question of whether the financial service activities and the entities that now populate the crypto world should be brought within the regulatory framework, Sir Jon answers yes. The reasons being to protect both consumers/investors and financial stability but also to foster innovation, so that crypto can be developed and adopted at scale within a framework that manages risks to existing standards before the industry grows to a point where a crypto shock could have a much greater destabilising impact.
- In terms of the ‘how’, the guiding principle should be ‘same risk, same regulatory outcome’. The starting point should be the existing regulatory frameworks – for investment products, for exchanges, for payments systems and other financial functions – and the level of assurance already required that the relevant risks have been managed.
- Sir Jon highlights that the Financial Services and Markets Bill (currently progressing through Parliament) looks to extend the current Bank of England and FCA regulatory regimes for e-money and payment systems to cover the use of ‘stablecoins’ for payments. The powers in the Bill will extend not only to the systems for transferring such coins between parties to make payments, but to the issuance and storing of the coins as well. The Bank of England intends to consult in early 2023 on the regulatory framework that will apply to such systemic payment systems and the services, like wallets, that accompany them.
- HM Treasury intends to consult on extending the investor protection, market integrity and other regulatory frameworks that cover the promotion and trading of financial products to activities and entities involving cryptoassets.
- In late 2022, the Bank of England and HM Treasury plan to issue a consultative report on the potential issuance of a digitally native pound sterling.
So, there's plenty more discussion to follow on these topics but the speech provides a useful indication of the thinking driving the regulatory review agenda. Evolution, not revolution, the likely mantra on this basis.
"...our aim is to ensure that innovation can take place but within a framework in which risks are properly managed and which safeguards the sustainability of such innovation. The events of last week provide a compelling demonstration of why that matters." (Sir Jon Cunliffe, Bank of England)