2022 has been nothing short of eventful for the cryptocurrency industry, with a sustained drop in digital asset prices and several industry heavyweights, including Terra and Three Arrows Capital buckling under the crash. While the latest cataclysmic collapse of FTX has pushed several regulatory bodies across the globe into considering different ways to regulate the industry, the authorities in the United Kingdom are taking cautionary steps toward that angle.
In a recent interview with Sky News, the Bank of England deputy governor, Sir Jon Cunliffe pointed out that the FTX scandal has highlighted the risk of leaving the crypto industry unregulated. He stated that there is an urgent need to provide greater protection for UK investors looking to gain more exposure to the cryptocurrency industry.
Cunliffe emphasized that prospective crypto investors should have a defined structure that allows them to invest in the asset class that ensures similar consumer protection and integrity to traditional financial markets. Using the FTX saga as a case study, Cunliffe pointed out that existing regulatory measures governing the traditional finance sector could have protected the millions of affected users.
He said, “We saw things like clients’ money appears to have gone missing, conflicts of interest between different operations, transparency, audit, and accounting." He noted that crypto investors should have access to a regulated environment that prevents the occurrence of cases similar to the FTX failure.
Crypto Trading Could Potentially Destabilize the Financial System
The deputy governor noted that the FTX collapse highlighted how deeply intertwined the crypto industry is becoming with the traditional financial market. Over the past few years, crypto adoption has shot through the roof, with increased interest from both retail and institutional investors.
Cunliffe pointed out that the growing adoption of digital assets by these institutions could pose a systemic problem if there is no regulatory clarity.
He said, "Trading of crypto assets was not big enough to destabilize the financial system but it was starting to develop links with the financial system… We had banks and investment funds and others who wanted to invest in it and I think we should think about regulation before it becomes integrated with the financial system and before it becomes a systemic problem."
The UK government has continued to show interest in regulating the digital asset ecosystem, especially as the nation seeks to become a global cryptocurrency hub. Earlier this month, the UK Payment System Regulator (PSR) revealed that it is currently exploring how best to regulate the nascent industry and protect investors.
This latest move from the PSR comes as Parliament continues to push toward passing the Financial Markets and Services bill, which would recognize cryptoassets as financial instruments in the UK.
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