Bank of England Calls for Crypto Regulation as Chaos Unfolds

In Brief

• The Bank of England said a regulatory framework for cryptocurrencies could help prevent a collapse like FTX from endangering financial stability.
• Ironically, FTX was domiciled in the Bahamas, a former British colony, several of which remain deregulated offshore financial centers.
• Former SEC chair Jay Clayton also scrutinized these offshore sites as being unsuitable for retail investors.

The Bank of England has called for greater regulation of cryptocurrencies in light of the FTX collapse, which incidentally occurred in a member state of the British Commonwealth.

Bank of England Deputy Governor Jon Cunliffe said that cryptocurrencies and associated services should come under greater regulation. Originally scheduled to speak about stablecoin regulation, Cunliffe first referred to the recent collapse of cryptocurrency exchange FTX.

Bank of England: Reasons for Regulation
In light of the recent FTX collapse, Cunliffe outlined several reasons to “bring the financial service activities and the entities that now populate the crypto world within the regulatory framework.”

First, Cunliffe highlighted the immediate need to protect investors, saying they deserved to operate within fair marketplaces. Next, he emphasized the need to protect overall financial stability.

The integration and size of FTX within the crypto ecosystem meant its collapse has had a resounding impact. Many associated exchanges and projects have been forced to fold or are currently facing extreme financial difficulties.

However, the deputy governor pointed out that this had fortunately not been the case with mainstream finance. Although Cunliffe strongly advised that a regulatory framework for cryptocurrencies be established in order to avoid this potential outcome.

Britain’s Offshore Territories
Yet, the calls for regulatory necessity from the Britain’s central bank ring with some irony, considering the focal point of the debacle. FTX was based in the Bahamas, a former British colony, and a member state of Britain’s Commonwealth of Nations.

In fact, several prominent offshore financial centers, known for their lax regulations, remain British Overseas Territories. These include Bermuda, the Cayman Islands and the Isle of Man.

The former head of the Securities and Exchange Commission Jay Clayton scrutinized these locations when speaking of FTX recently. “Off-shore financial institutions just don’t have any of the basic protections that we have in the U.S.,” he said on CNBC’s Squawk Box.

“The real lesson here is, financial entities operating outside the United States, particularly not in jurisdictions that we know well; your retail investor should stay away from.”

Clayton also called for a more comprehensive approach to regulation in order to mitigate the damage from similar incidents. “Regulatory cooperation is an area where there’s room for improvement,” Clayton said. “If we had more global cooperation, you would have had less of this.”

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