Cryptocurrency trading is “too dangerous” to remain outside mainstream financial regulation and could pose “a systemic problem” without action, the deputy governor of the Bank of England has warned.
Speaking for the first time since the founder of the crypto trading platform FTX was arrested and charged with massive fraud, Sir Jon Cunliffe told Sky News the Bank is considering regulation to protect retail investors in the “casino” of crypto trading, as well as the wider financial system from potential crypto shocks.
Sam Bankman-Fried was extradited on Wednesday from the Bahamas to the US where he will appear in a New York court charged with eight counts of fraud, money laundering and breaking campaign finance.
The collapse of FTX left more than one million customers unable to withdraw assets worth an estimated $8bn.
Prosecutors allege he used FTX’s customers’ money to cover losses in his private crypto hedge fund Alameda Capital in what the company’s new chief executive told Congress was “old-fashioned embezzlement”.
An estimated 80,000 of FTX’s customers are based in the UK, with individual liabilities as high as £5m in life savings according to a lawyer acting for dozens of victims.
Louise Abbott, a crypto-fraud specialist, told Sky News: “These individual investors have invested anything from a couple of thousand pounds up to about £5m, so massive amounts of money, all completely frozen, I’m going to use the word frozen rather than lost, because hopefully there is going to be something given back to them at some point. But this is huge money, huge money lost or stuck, or frozen in time.”
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Crypto credibility
The episode is a huge blow to the credibility of cryptocurrencies, digital assets that draw their value not from state backing, but from relative scarcity and the willingness of other investors to trade in them.
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Mr Bankman-Fried had cultivated links in Washington and on Wall Street, making millions of dollars in political donations and attracting high-profile investors to his platform.
His fall has emphasised the volatility of crypto investment and the lack of regulation in an industry that, despite widespread scepticism, is attracting growing attention from the financial mainstream.
Efforts to regulate
In the UK, regulators have tried and failed to impose their writ on crypto exchanges domiciled offshore, while the government has a goal, set out in April by Rishi Sunak when he was chancellor, to make the UK a “global crypto assets hub”, an ambition that depends in large part on effective regulation.
Sir Jon, deputy governor with responsibility for financial stability, told Sky News the Bank’s regulation efforts were aimed at protecting individuals and maintaining financial stability.
“There’s a lot of activity that’s developed over the last 10 years on the trading and sale of crypto assets, assets without any intrinsic value, so they’re incredibly volatile. And all of that has grown up outside of regulation,” he said.
“What we saw in FTX… is a number of activities which in the regulated financial sector, would have had certain protections. We saw things like clients’ money appears to have gone missing, conflicts of interest between different operations, transparency, audit and accounting. All of the perhaps boring things that happened in the normal financial sector, didn’t really happen in that set of activities. And as a result, I think a lot of people have lost a lot of money.”
Comparing crypto trading to a casino, Sir Jon said investors who wanted to speculate should be able to do so without the risk of losing access to their funds.
“It is in effect, in my view, a gamble, but we allow people to bet, so if you then want to get involved in that you should have the ability to in a place that is regulated in the same way that if you gamble in a casino it’s regulated. You should have the full information on the tin as to what you’re doing.”
The Bank also has to address the risk to financial stability that could flow from digital assets as institutional investors and banks explore exposure to an estimated $1trn in crypto assets.
“This trading of crypto assets was not big enough to destabilise the financial system, but it was starting to develop links with the financial system,” Sir Jon said. “I don’t know how that will develop. But we had banks and investment funds and others who wanted to invest in it. I think we should think about regulation before it becomes integrated with the financial system and before we could have a potential systemic problem.
“So I don’t think it will be possible to say this can be just kept outside of the financial system. It’s too dangerous. I think it is difficult but possible to say, let’s bring it in, where and when we think we can manage the risk to the standards we’re used to.”
Potential for blockchain
While cryptocurrencies have proved consistently volatile since the inception of Bitcoin 14 years ago, the underlying technology, blockchain, is considered to have significant potential across industries to manage data, and speed up and simplify transactions.
Blockchain provides proof of transactions on a public record known as a distributed digital ledger.
Each new exchange of cryptocurrency is recorded on a “block” which is added to the “chain” containing details of the new transaction and the previous transaction, meaning it can only be falsified by altering all previous links.
The system is maintained and overseen by every computer linked to the network rather than a central monitoring entity.
Mercedes is exploring the potential of blockchain to manage the data that will enable autonomous driving, while Vodafone is exploring its utility in managing the billions of micro-transactions that will be facilitated by the next generation of internet technology.
‘Smart money’ could also simplify global supply chains, with the prospect of micro transactions using stable tokens being linked to individual parts in production processes.
“There are technologies here which could, and I stress could, be of real use in the normal financial system, more efficient ways of doing things, potentially more resilient ways of doing things,” said Sir Jon.
“That hasn’t been proven in the crypto world. But if we could provide a regulatory space where people can see if they can develop products using this, we might be able to get the benefit of some of those technologies.”
The Bank of England’s own digital coin
As part of this process the Bank of England is consulting on plans to develop its own central bank digital coin, an electronic version of sterling that would carry the same security as a pound coin, but with the digital flexibility that could one day replace cash.
“Physical cash will always be made available by the bank as long as people want it and many people depend on it. But it’s not fully usable in the way we live now. So the question for the Bank of England is that as the way we as society changes, as we live our lives more digitally, should we continue to provide money to the public which is usable across a range of transactions?
“This would be a digital equivalent of the’ I promise to pay the bearer’ promise, which in the end underpins confidence in money in the UK. Whenever you want, you can turn that money you hold in the bank into basically Bank of England money backed by the state with that promise to pay the bearer.
“We want to ensure that as physical cash becomes less usable in many parts of the economy, perhaps we need to offer something digitally to provide that underpinning.”
There is a lot at stake this week for Sophie Blake, a 52-year-old mother to a young adult, who was diagnosed with stage four cancer in May 2023.
As MPs vote on whether to change the law to allow assisted dying, Sophie tells Sky News of the day her life changed.
“One night I woke up and as I turned I felt a sensation of something in my breast actually move, and it was deep,” she says, speaking from her home in Brighton.
“Something fluidy, a very odd sensation. I woke up and made a doctor’s appointment.”
Sophie underwent an ultrasound followed by a biopsy before she was taken to a room in the clinic and offered water.
“They said, ‘a hundred percent, we believe you have breast cancer’.”
But it was the phone call with her mother that made it feel real.
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“My mum had been waiting at home. She phoned me and said ‘How is it darling?’ and I said ‘I’ve got breast cancer,’ and it was just that moment of having to say it out loud for the first time and that’s when that part of my life suddenly changed.”
Sophie says terminal cancers can leave patients dreading the thought of suffering at the end of their lives.
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“What I don’t want to be is in pain,” she says. “If I am facing an earlier death than I wanted then I want to be able to take control at the end.”
Assisted dying, she believes, gives her control: “It’s an insurance policy to have that there.”
Disability rights advocate Lucy Webster warns that for people like Sophie to have that choice, others could face pressure to die.
“All around the world, if you look at places where the bill has been introduced, they’ve been broadened and broadened and broadened,” she tells Sky News.
Lucy is referring to countries like Canada and Netherlands, where eligibility for assisted deaths have widened since laws allowing it were first passed.
Lucy, who is a wheelchair user and requires a lot of care, says society still sees disabled people as burdens which places them at particular risk.
“I don’t know a single disabled person who has not at some point had a stranger come up to us and say, ‘if I were you, I’d kill myself’,” she says.
The assisted dying bill, she says, reinforces the view that disabled lives aren’t worth living.
“I’ve definitely had doctors and healthcare professionals assume that my quality of life is inherently worse than other people’s. That’s a horrible assumption to be faced with when [for example] you’ve just gone to get antibiotics for a chest infection. There are some really deep-seated medical views on disability that are wrong.”
Under the plans, a person would need to be terminally ill and in the final six months of their life, and would have to take the fatal drugs themselves.
Among the safeguards are that two independent doctors must confirm a patient is eligible for assisted dying and that a High Court judge must give their approval. But the bill does not make clear if that is a rubber-stamping exercise or if judges will have to investigate cases including risks of coercion.
Julian Hughes, honorary professor at Bristol Medical School, says there’s a very big question about whether courts have the room to take on such a task.
“At the moment in the family division I understand there are 19 judges and they supply 19,000 hours of court hearing in a year, but you’d have to have an extra 34,000,” he explains.
“We shouldn’t fool ourselves and think that there wouldn’t be some families who would be interested in getting the inheritance rather than spending the inheritance on care for their elderly family members. We could quickly become a society in which suicide becomes normalised.”
Young people will lose their benefits if they refuse to take up work and training opportunities, a minister has said ahead of announcing measures to cut the welfare bill.
Liz Kendall, the work and pensions secretary, told Sky’s Sunday Morning with Trevor Phillips that “conditions” will be attached to new skills opportunities the government intends to create.
With a record number of young people currently unemployed, Labour promised in its manifesto a “youth guarantee” for 18-21 year olds to have access to training, an apprenticeship, or support to find work.
“If people repeatedly refuse to take up the training work responsibilities, there will be sanctions on their benefits,” Ms Kendall said.
“The reason why we believe this so strongly is that we believe in our responsibility to provide those new opportunities which is what we will do. We will transform those opportunities, but young people will be required to take them up.”
The Labour government has said it will stick to a commitment under the former Tory administration to reduce the welfare bill by £3bn over five years.
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Ms Kendall said her party will bring in its “own reforms” to achieve that target, though did not elaborate further.
The Conservatives had planned to change work capability rules to tighten eligibility, so around 400,000 more people signed off sick long-term would be assessed as needing to prepare for work by 2028/29 to deliver the savings.
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Asked whether these people would ultimately be denied their current benefits under Labour’s plans, Ms Kendall told the BBC’s Sunday With Laura Kuenssberg: “I’m saying we will bring forward our own reforms. You wouldn’t expect me to announce this on your programme.
“But my objective is that disabled people should have the same chances and rights to work as everybody else.”
The latest official forecasts published by the government show the number of people claiming incapacity benefits is expected to climb from around 2.5 million in 2019 to 4.2 million in 2029.
Last year there were just over three million claimants.
Ms Kendall will launch proposals on Tuesday designed to “get Britain working” amid concerns about the soaring unemployment rate.
The white paper is expected to include the placement of work coaches in mental health clinics and a “youth guarantee” aimed at ensuring those aged 18-21 are working or studying.
The UK remains the only G7 country that has higher levels of economic inactivity now than before the pandemic.
Ms Kendall said the reasons are “complex” and include the fact that the UK is an older and sicker nation.
Asked whether she believes “normal feelings” are being “over-medicalised”, she said that while some people may be “self-diagnosing” themselves with mental health issues it is a “genuine problem”.
“There’s not one simple thing. You know, the last government said people were too bluesy to work.
“I mean, I don’t know who they were speaking to. There is a genuine problem with mental health in this country.”
Ms Kendall’s language was softer than Sir Keir Starmer, who this weekend promised a crackdown on “criminals” who “game the system” .
Writing in the Mail on Sunday, he said: “Make no mistake, we will get to grips with the bulging benefits bill blighting our society.”
A man is fighting for his life after a stabbing on Westminster Bridge, police have said.
Officers were called to the scene at around 10.45am on Sunday to reports of a fight and found a man with a stab injury. He was taken to hospital in critical condition.
Three people have been arrested on suspicion of attempted murder and another has been arrested on suspicion of affray.
Two of those arrested were taken to hospital with minor facial injuries, the Met Police said.
It is understood the incident is not being treated as terror-related.
The road remains closed, with the police investigation ongoing.