Cunliffe Slams ‘Extreme’ Risks Taken by Collapse of Crypto Exchange FTX: Bank of England Deputy Governor Calls for Tougher Regulation
The Bank of England Deputy Governor warned that the crypto world was “not a stable ecosystem” and criticized the way the FTX exchange collapsed.
In his latest industry review, Sir Jon Cunliffe said digital assets like bitcoin and ethereum have “no intrinsic value”.
And he called out some crypto companies for taking “extreme” risks and failing to meet the standards the public might expect.
High risk: In his latest critique of the cryptocurrency industry, Sir Jon Cunliffe (pictured) said digital assets like bitcoin and ethereum had ‘no intrinsic value’
FTX, one of the largest crypto exchanges that allows users to buy and trade assets like bitcoin and its own FTT digital coin, has recently imploded.
Cunliffe called it “probably the biggest – and certainly the most spectacular – failure to date in the crypto ecosystem.”
He said the scandal underscores the need to introduce regulation of the crypto world.
“While the crypto world – as demonstrated during last year’s crypto winter and last week’s FTX implosion – is not currently big enough or sufficiently interconnected with traditional finance to threaten the stability of the financial system, its links with traditional finance have grown rapidly,’ Cunliffe said.
“We must not wait until it is big and connected to develop the regulatory frameworks needed to prevent a crypto shock that could have a much greater destabilizing impact.”
According to filings, FTX owes its top 50 customers more than £52 million on average.
FTX used its own FTT coin as collateral against loans and other financial transactions, and a huge amount of FTT was held by FTX’s sister company Alameda Research.
As doubts emerged over the true value of FTT, customers began withdrawing their money from FTX, leaving the company with a gaping hole in its finances.
Cunliffe criticized FTX for “accepting its own unsecured crypto asset as collateral for loans and margin payments.”
Collapse: FTX used its own FTT coin as collateral against loans and other financial transactions, and a huge amount of FTT was held by FTX’s sister company Alameda Research
This created “an extreme risk of bad driving,” he said.
Last week, John Ray III – a restructuring expert who has dealt with the aftermath of some of the world’s biggest corporate meltdowns and oversees the bankruptcy of FTX – said: “Never in my career have I seen a such a complete failure of corporate controls and such a complete lack of trustworthy financial information as has happened here.
In a speech at Warwick Business School, Coventry, yesterday, Cunliffe said: “Technology, in and of itself, does not change the need for transparency in corporate structures, governance, auditing and systems and controls. – for example to protect clients’ funds.’
But he said the Bank would not abandon plans to explore launching its own digital currency. Unlike assets such as bitcoin, which are unsecured, this central bank digital currency (CBDC) would be tied to the value of the pound. But regulation is needed for the sector, he added. No regulator in the UK has the power to oversee crypto businesses.
“People don’t fly in dangerous airplanes,” he said. “Innovation can start in unregulated spaces. But it will only be widely adopted within a framework that manages the risks to existing standards.