Crypto Could Be Regulated Within The Existing Regulatory Frameworks

In his speech on November 21, 2022, on the topic “Reflections on DeFi, digital currencies and regulation”, at Warwick Business School’s Gilmore Centre Policy Forum Conference on DeFi & Digital Currencies,  the Bank of England’s Deputy Governor for Financial Stability, Sir Jon Cunliffe, said that the general themes of corporate governance, and the quality of collateral in regulated and supervised conventional financial firms do apply to the crypto world.

Sir Cunliffe mentioned that bringing the activities of the crypto world within the relevant regulatory frameworks provides several benefits that include the protection of consumers/investors, protection against financial stability risk, and fostering of innovation of new technology. 

Sir Cunliffe further stressed the need to continue the inclusion of crypto financial service activities and the entities within the existing regulatory framework under the guiding principle of ‘same risk, same regulatory outcome’.

Sir Cunliffe said that the central bank is actively exploring the issuance of a digitally native Pound Sterling. With the current trends marked by a reducing role of cash and an increasingly digital economy that comes with new forms of tokenised money, a digital pound that is robust and interchangeable without loss of value may be needed in future. He also noted that a digital pound could provide a settlement asset to a wide variety of private sector innovators and developers of payment services.

Sir Cunliffe said that a consultative report should be issued around the end of this year setting out the next steps on the issuance of a digitally native pound sterling by the Bank of England.

On November 15, 2022, before the Committee on Banking, Housing, and Urban Affairs, in Washington, D.C., the US Federal Reserve Vice Chair for Supervision, Michael S. Barr, said: “We do not want to stifle innovation, but when regulation is lax or behind the curve, it can facilitate risk taking and a race to the bottom that puts consumers, businesses, and the economy in danger and discredits new products and services with consumers and investors. I believe everyone has a stake in getting the regulatory balance right”.

Barr further said that crypto-asset-related activity requires effective oversight that includes safeguards to ensure that crypto companies are subject to similar regulatory safeguards as other financial services providers.

As to whether crypto is regulated under an existing or a separate legal and regulatory framework, the recent events during the dramatic collapse of the FTX exchange further enhance the calls for faster and more effective crypto regulatory frameworks.

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