BoE official compares current crypto market regulation to ‘unsafe aeroplanes’

Jon Cunliffe, deputy governor for financial stability at the Bank of England, has called for a clear regulatory framework for crypto to address risks amid the recent market downturn.

In a written speech at the British High Commissioner’s Residence in Singapore on Tuesday, Cunliffe said regulators needed to “get on with the job” of incorporating crypto and blockchain into existing frameworks. He cited certain events leading up to what some have called the next crypto winter, including the price of Bitcoin (BTC) losing “70% of its value since November,” the collapse of Terra (LUNA) — now called Terra Classic (LUNC), stablecoins becoming depegged from the U.S. dollar and Three Arrows Capital filing for bankruptcy in Singapore.

“The lesson we should not take from this episode is that “crypto” is somehow “over” and we do not need to be concerned about it anymore,” said Cunliffe. “Crypto technologies offer the prospect of substantive innovation and improvement in finance. But to be successful and sustainable, innovation has to happen within a framework in which risks are managed: People don’t fly for long in unsafe aeroplanes.”

Jon Cunliffe sets out what he thinks the lessons are from the recent instability and losses in crypto markets – the so-called ‘crypto winter’. https://t.co/IoJ5YGaYln pic.twitter.com/7E6glOr4FW

— Bank of England (@bankofengland) July 12, 2022

According to the deputy governor, regulators needed to accelerate efforts to find a place for crypto in current frameworks based on the principle of “same risk, same regulatory outcome.” Cunliffe added that though the technology around finance had changed, it did not change the underlying risks coming from leveraging assets and volatility around investments with “no real economy assets backing them and no means of generating revenue,” as well as the need for assets “to have a stable value under stress” for them to be used for transactions.

“Even with the recent collapse crypto assets and crypto markets have not posed a systemic risk, though I recognise of course that this of is little comfort to those nursing substantial losses.”

Leadership among financial lawmakers and regulators in the United Kingdom has recently changed hands amid the scandal around soon-to-be-former Prime Minister Boris Johnson. Nadhim Zahawi took over following Rishi Sunak’s resignation as chancellor of the Exchequer, and Richard Fuller has replaced John Glen as the Economic Secretary. Treasury also announced on Friday that Hong Kong Securities and Futures Commission CEO Ashley Alder will become the next chair of the U.K. Financial Conduct Authority, or FCA, starting in January.

Regulators seem to be stepping up efforts to propose regulations for cryptocurrencies and stablecoins across the European Union and the globe. On Monday, the Financial Stability Board, or FSB, said it planned to present certain global crypto rules, which would likely apply to G20 member states starting in October.

Related: Crypto market volatility shows need for ‘enhanced regulatory and law enforcement frameworks’ — BoE

Prior to the resignations in response to Boris Johnson’s actions, the U.K. Treasury had been moving forward with a regulatory framework on stablecoins as a means of payment. Cunliffe added that the FCA, Bank of England and FSB planned to issue a consultation paper on a proposed policy framework for stablecoins later in 2022.

“Innovators, alongside regulators and other public authorities, have an interest in the development of appropriate regulation and the management of risk,” said Cunliffe. “It is only within such a framework, that they can really flourish and that the benefits of technological change can be secured.”