Cunliffe devoted much of his speech at a conference on DeFi and digital currencies to the FTX implosion and its consequences.
“FTX, along with a number of other centralised crypto trading platforms, appear to operate as conglomerates, bundling products and functions within one firm. In conventional finance these functions are either separated into different entities or managed with tight controls and ring-fences,” Cunliffe told his audience.
The man in charge of financial stability at the BofE stressed: “Technology in and of itself does not change the need for transparency in corporate structures, governance, audit and systems and controls – for example to protect customers’ funds.”
Cunliffe says that crypto should be regulated for three reasons: to protect investors, to protect financial stability, and to foster innovation.
The third reason “may appear counter intuitive to those who see regulation as opposed to innovation. But, as I have said before, ‘people do not fly in unsafe aeroplanes’. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards.”
The Financial Services and Markets Bill, currently in Parliament, is likely to extend the current BofE and FCA regulatory regimes for e-money and payment systems to cover the use ‘stablecoins’ for payments.
The central bank is also set to begin a consultation next year that will investigate “the requirements for corporate structure, governance, accountability and transparency necessary” for stablecoins to meet the standards seen in the rest of the FS sector.
Cunliffe also touched on the bank’s work on a potential digital pound, which is “driven by the trends we now see both specifically in payments, including the reducing role of cash, and more generally in the increasing digitalisation of daily life”.
He concludes, “I do want to emphasise that this work, and any future decision to introduce a digitally native pound should not be seen in the context of the status quo but rather in the context how current trends in money, payments and technology might evolve”.