Policy Makers Should Get On With Regulating Crypto, BOE’s Cunliffe Says

Regulators should accelerate their work on setting up effective rules for crypto, Bank of England Deputy Governor Jon Cunliffe said.

“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,” Cunliffe said, according to text of a speech he gave at the British High Commission in Singapore on Tuesday, referring to the market decline some are calling a "crypto winter."

There has been “a dramatic bout of instability and losses in crypto markets,” Cunliffe said, with around $2 trillion wiped out of crypto markets in recent months. The meltdown has been exacerbated by the collapse of multibillion-dollar stablecoin issuer Terra and other participants including crypto lender Celsius and the Three Arrows Capital hedge fund.

Technology does not change the underlying risks in economics and finance, he said.

“Crypto technologies offer the prospect of substantive innovation and improvement in finance. But to be successful, sustainable innovation has to happen within a framework in which risks are managed. People don’t fly for long in unsafe airplanes.”

In light of recent events, international regulators are showing signs they are speeding up global crypto rules. The Basel Committee on Banking Supervision, the global standard setter for banking regulations, is getting ready to issue guidance on the prudential treatment of crypto assets held by banks. Meanwhile, international financial watchdog the Financial Stability Board is looking to propose crypto regulations by October.

The collapse of algorithmic stablecoin terraUSD (UST) may have also quickened rules for all stablecoins, including those pegged to the value of real assets like the U.S. dollar. In June, policymakers in the European Union agreed on a landmark crypto regulatory framework called the Markets in Crypto Assets package that focuses heavily on stablecoin regulation.

The U.K. government is coordinating its efforts to produce stablecoin regulation that could come out by August. The Treasury, the government's finance arm, has already released a consultation for governing stablecoins that could influence larger financial systems. Regulators in the U.K. – including the Bank of England – hope to issue a consultation document on the regulatory policy framework of stablecoins later this year, Cunliffe said.

He added that crypto regulations should follow the principle of “same risk, same regulatory outcome” meaning regulators should try to extend existing financial rules to mitigate similar risks involving crypto.

But when that fails, regulators may have to take stronger measures.

"If and when for certain crypto related activities this proves not to be possible, where we can find no way to mitigate and manage the risk to the extent necessary, that is to say to the extent such risk is managed in other parts of the financial system, we should not let activities proceed," Cunliffe said.