Better crypto regulations are needed to protect the financial system after the collapse
A senior Bank of England official asserted that more legislative efforts would be required to combat the banking system following the collapse of the FTX exchange.
Digital currencies still are not large enough to pose a threat, but the world will soon catch up. Sir Jon Cunliffe anticipates this.
FTX filed for bankruptcy over the weekend and owed nearly $3 billion ($2.62 billion) to its creditors.
The majority of its users await refunds.
Sir Jon, deputy governor for financial stability at the bank, said that the recent fluctuations in the value of cryptocurrencies were a cause for concern.
The worth of Bitcoin, the world’s most significant digital money, has decreased by more than 70%.
Cryptocurrency markets, at the moment, are considered not “large enough” or “interconnected” with enough other mainstream finance to threaten the global economy.
But its links with mainstream finance were growing at a great rate.
We should not wait until there is a crisis before producing the regulatory frameworks designed to prevent cryptocurrency damage.
The difficulty of retrofitting regulations and policies to comply with new business models after the technologies have reached a systemic scale has been shown by the experiences of businesses in other fields of digitalization.
Sir Jon mentioned that the UK’s financial regulator, the Financial Conduct Authority, had warned for several weeks before the FTX’s collapse that “that company’s collection of financial information, products, or services in the UK may be without our authorization click on the following link. Such instances are likely not included with the possibility of getting a refund.”
The UK authorities did not authorize FTX’s operations in the country, but with an enigmatic abruptness, it went bankrupt and shook the world economy.
The company filings before the insolvency reveal it affects over one million residential and commercial entities that may have had some of their cash depleted.
FTX announced on Saturday that it was reviewing its international business and preparing for the sale or restructuring of some businesses.
Last week, the CEO of the failed cryptocurrency exchange hit out at the management’s performance, claiming he hadn’t ever “seen such a complete failure of corporate controls.”
Mr. Ray, who replaced the company’s founder Sam Bankman-Fried, objected to the “complete absence of credible financial information.”
Mr. Bankman-Fried was one of the world’s most opulent figures in the crypto scene, earning over a billion dollars in 2021.
His FTX network was the second-largest in the world, with $10 billion to $15 billion a day traded.
Last summer, it acquired the naming rights for the Heat NBA team’s arena. It spent millions of dollars on advertising, including some during the Super Bowl.
Mr. Bankman-Fried also projected an unusual manner to running a company, tweeting pictures of himself sleeping on a beanbag while resting at his desk in the office.
Despite the collapse of the FTX exchange, Sir Jon remarked that this was the start of a crucial period for digital currency agendas in the United Kingdom.
He asserted that the work involved a digital pound was driven by “a decline in the years to come of the value of cash, and broadly in the increasing digitalization of everyday life.”
Sir Jon indicated bank is issuing a helpful report at the end of the year that will lay out possible next steps.
The United Kingdom is preparing to approve cryptocurrency regulations in the Financial Services and Markets Bill in Parliament. The bill will propose regulation for stablecoins – a crypto token backed by an asset, such as a country’s national currency – and the promotion of crypto assets.
Sam Bankman-Fried, the CEO of FTX shortly before its fall, invested every opportunity he had to define his business as “the most regulated,” if he could.
FTX was reportedly thought to have received credentials to run in several countries and provide many cryptocurrency solutions.
However, ultimately, those certificates provided no security for either customers or investors.
Whenever a sizeable crisis occurs in crypto, cries for regulatory action grow, but the type of regulation that matters is the approval of cryptocurrencies.
The principal concerns for regulators center around preventing customers from losing money to crypto firms going under and securing that their funds, or people’s money, are safe.
But, like cryptocurrency, there is always a tension between security and freedom.
By ensuring cryptocurrency firms maintain appropriate standards, it will be easier to bring them closer to traditional financial processes – anathema to those who believe in crypto.
Every twist in the FTX scenario might lead to the sharp end of an empire.