FTX collapse shows crypto is ‘too dangerous’ not to regulate, Bank of England deputy governor says
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.”
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.
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.
Deputy Governor of the Bank of England Jon Cunliffe
“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.”
The dates for Donald Trump’s state visit to the UK have been announced, with the US president due to be welcomed by the King from 17 to 19 September.
Buckingham Palace also confirmed that President Trump and first lady Melania will be hosted by the King and Queen at Windsor Castle.
It was expected that the three-day state visit would take place in September after Mr Trump let slip earlier in April that he believed that was when his second “fest” was being planned for.
Windsor was also anticipated to be the location after the US president told reporters in the Oval Office that the letter from the King said Windsor would be the setting. Refurbishment works at Buckingham Palace also meant that Windsor was used last week for French President Emmanuel Macron’s visit.
This will be Mr Trump’s second state visit to the UK, an unprecedented gesture towards an American leader, having previously been invited to Buckingham Palace in 2019.
Donald Trump and Melania Trump posing with Charles and Camilla in 2019. Pic: Reuters
He has also been to Windsor Castle before, in 2018, but despite the considerable military pageantry of the day, and some confusion around inspecting the guard, it was simply for tea with Queen Elizabeth II.
Further details of what will happen during the three-day visit in September will be announced in due course.
On Friday, Sky News revealed it is now unlikely that the US president will address parliament, usually an honour given to visiting heads of state as part of their visit. Some MPs had raised significant concerns about him being given the privilege.
But the House of Commons will not be sitting at the time of Mr Trump’s visit as it will rise for party conference season on the 16 September, meaning the president will not be able to speak in parliament as President Macron did during his state visit this week. However, the House of Lords will be sitting.
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Labour MP: ‘Trump isn’t welcome here’
In February this year, Prime Minister Sir Keir Starmer presented the US president with the letter from the King inviting him to visit during a meeting at the White House.
After reading it, Mr Trump said it was a “great, great honour”, adding “and that says at Windsor – that’s really something”.
In February, Sir Keir Starmer revealed a letter from the King inviting Donald Trump to the UK. Pic: Reuters
In the letter, the King suggested they might meet at Balmoral or Dumfries House in Scotland first before the much grander state visit. However, it is understood that, although all options were explored, complexities in both the King and Mr Trump’s diaries meant it wasn’t possible.
Read more from Sky News:
Is the UK ready for a ‘Trump-fest’?
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King and Trump won’t hold private meeting
This week, it emerged that Police Scotland are planning for a summer visit from the US president, which is likely to see him visit one or both of his golf clubs in Aberdeenshire and Ayrshire, and require substantial policing resources and probably units to be called in from elsewhere in the UK.
Precedent for second-term US presidents, who have already made a state visit, is usually tea or lunch with the monarch at Windsor Castle, as was the case for George W Bush and Barack Obama.
A small plane has crashed at Southend Airport in Essex.
Essex Police said it was at the scene of a “serious incident”.
Images posted online showed huge flames and a large cloud of black smoke, with one witness saying they saw a “fireball”.
A police statement said: “We were alerted shortly before 4pm to reports of a collision involving one 12-metre plane.
“We are working with all emergency services at the scene now and that work will be ongoing for several hours.
“We would please ask the public to avoid this area where possible while this work continues.”
A huge fireball near the airport. Pic: Ben G
It has been reported that the plane involved in the incident is a Beech B200 Super King Air.
According to flight-tracking service Flightradar, it took off at 3.48pm and was bound for Lelystad, a city in the Netherlands.
One man, who was at Southend Airport with his family around the time of the incident, said the aircraft “crashed headfirst into the ground”.
John Johnson said: “About three or four seconds after taking off, it started to bank heavily to its left, and then within a few seconds of that happening, it more or less inverted and crashed.
“There was a big fireball. Obviously, everybody was in shock in terms of witnessing it. All the kids saw it and the families saw it.”
Mr Johnson added that he phoned 999 to report the crash.
Southend Airport said the incident involved “a general aviation aircraft”.
Four flights scheduled to take off from Southend this afternoon were cancelled, according to its website.
Flightradar data shows two planes that had been due to land at Southend were diverted to nearby airports London Gatwick and London Stansted.
Plumes of black smoke. Pic: UKNIP
Essex County Fire and Rescue Service said four crews, along with off-road vehicles, have attended the scene.
Four ambulances and four hazardous area response team vehicles are also at the airport, as well as an air ambulance, the East of England Ambulance Service said.
Its statement described the incident as “still developing”.
Fire engines at the airport
David Burton-Sampson, the MP for Southend West and Leigh, posted on social media: “I am aware of an incident at Southend Airport. Please keep away and allow the emergency services to do their work.
“My thoughts are with everyone involved.”
Local councillor Matt Dent said on X: “At present all I know is that a small plane has crashed at the airport. My thoughts are with all those involved, and with the emergency services currently responding to the incident.”
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UK
Heidi Alexander says ‘fairness’ will be government’s ‘guiding principle’ when it comes to taxes at next budget
Another hint that tax rises are coming in this autumn’s budget has been given by a senior minister.
Speaking to Sunday Morning with Trevor Phillips, Transport Secretary Heidi Alexander was asked if Sir Keir Starmer and the rest of the cabinet had discussed hiking taxes in the wake of the government’s failed welfare reforms, which were shot down by their own MPs.
Trevor Phillips asked specifically if tax rises were discussed among the cabinet last week – including on an away day on Friday.
Politics Hub: Catch up on the latest
Tax increases were not discussed “directly”, Ms Alexander said, but ministers were “cognisant” of the challenges facing them.
Asked what this means, Ms Alexander added: “I think your viewers would be surprised if we didn’t recognise that at the budget, the chancellor will need to look at the OBR forecast that is given to her and will make decisions in line with the fiscal rules that she has set out.
“We made a commitment in our manifesto not to be putting up taxes on people on modest incomes, working people. We have stuck to that.”
Ms Alexander said she wouldn’t comment directly on taxes and the budget at this point, adding: “So, the chancellor will set her budget. I’m not going to sit in a TV studio today and speculate on what the contents of that budget might be.
“When it comes to taxation, fairness is going to be our guiding principle.”
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Afterwards, shadow home secretary Chris Philp told Phillips: “That sounds to me like a barely disguised reference to tax rises coming in the autumn.”
He then went on to repeat the Conservative attack lines that Labour are “crashing the economy”.
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Chris Philp also criticsed the government’s migration deal with France
Mr Philp then attacked the prime minister as “weak” for being unable to get his welfare reforms through the Commons.
Discussions about potential tax rises have come to the fore after the government had to gut its welfare reforms.
Sir Keir had wanted to change Personal Independence Payments (PIP), but a large Labour rebellion forced him to axe the changes.
With the savings from these proposed changes – around £5bn – already worked into the government’s sums, they will now need to find the money somewhere else.
The general belief is that this will take the form of tax rises, rather than spending cuts, with more money needed for military spending commitments, as well as other areas of priority for the government, such as the NHS.
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