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.”
An MP has told Sky News she was attacked online by the Tate brothers after she participated in a debate in the House of Commons about violence against women.
The controversial duo, Andrew and Tristan Tate, are facing charges of rape and human trafficking in the UK – all of which they deny.
But they are still very active online, and according to Sorcha Eastwood, the MP for Lagan Valley, are targeting her.
In a document seen by Sky News, Tristan Tate has highlighted one of the MP’s tweets and writes in private correspondence: “MP, nice target, can we sue her?”
Sorcha Eastwood says at first she thought the replies were from parody accounts and not the Tate brothers.
Her original tweet was about Elon Musk, not the Tate brothers. The MP said Musk’s tweets should be looked at through a counter-extremism lens.
“I was really concerned, I was concerned because to me that is a direct attack for want of a better phrase on me serving my constituents.
“I couldn’t believe that they decided to pick this random Northern Irish MP. The fact that it wasn’t even about them. This is something I didn’t go looking for.
“I think from my perspective, it’s a very, very sinister attempt to shut down important voices in public life, political discourse.”
It was only when she started noticing an uptick in abuse from other accounts she realised she had encountered some of the brothers’ followers.
“I had rape threats. I had death threats. I had people saying I should be hung from a lamppost. I had people saying I should be chopped into liver. I also had people then who were like we’ll waste 15 minutes raping Sorcha Eastwood.”
A representative for the Tate brothers told Sky News that there was no targeted campaign against Sorcha Eastwood
A representative for the Tate brothers told Sky News that there was no targeted campaign against her.
They said: “Ms Eastwood has a distorted view regarding social media if she believes one is required to ‘invite or ask’ people to interact.
“Tristan Tate is entitled to his view in relation to her tweet regarding Elon Musk.”
The self-styled “misogynist influencer” Andrew Tate and his brother Tristan have both been charged with human trafficking, face allegations of trafficking minors, sexual intercourse with a minor and money laundering in Romania.
There is also a European arrest warrant for them as they are facing separate, unrelated charges of rape and human trafficking in the UK. They deny all charges.
Ms Eastwood now worries for others who don’t have a platform like her and who may not feel like they can speak out.
“If this is what has happened to me I have absolutely no doubt that this has happened to others where they have been attempted to be silenced.”
Keir Starmer has previously commented on the Tate brothers’ case in the Commons saying it is “a live issue”, but adding that “the principle is absolutely clear” in relation to whether the brothers should face justice.
Sorcha Eastwood says she wants to see the government do much more to protect against abuse online.
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Tate brothers deny wrongdoing
“I think ultimately the government has taken the wrong course on this. They need to step up.
“This should be an issue of national security as far as the radicalisation of young people online. It should be an issue in terms of the levels of misinformation, disinformation and the lack of trust that is had in our politics right across the UK and Europe.
“I want the government to help me, help every other person to crack down on this and get serious about it. And the only way they’ll be able to do that, is by hitting these tech companies in the only language which they understand, which is money and via robust legislation.”
A government spokesperson said: “Violence against women and girls is a scourge on our society which is why we have set out an unprecedented mission to halve these crimes within a decade.
“Tackling illegal abuse both online and offline is central to supporting victims and preventing harm in our communities and we will not hesitate to strengthen laws to deliver this mission.
“Last month, parts of the Online Safety Act came into force meaning companies must take action to protect users from illegal material including extreme sexual violence.
“Further protections from this summer will require platforms to protect children from harmful, misogynistic, and violent content.”
UK
‘It’s just nasty’: Birmingham residents ‘overwhelmed’ by foul stench and massive rats as bins strike rumbles on
In parts of Birmingham, the stench is overwhelming – enough to make you heave.
At a block of flats in Highgate, in Birmingham city centre, we find a mountain of bin liners full of rubbish spewing out of the cavernous bin store, which is normally locked.
Mickel comes out to speak to us, while all around bin liners lie open, with the contents for all to see, including used nappies and rotting food.
Mickel says they’ve had ‘foxes and rats, literally the size of cats’
Outside Mickel’s flat in Highgate, bin liners lie open, spewing out rubbish
We both find it hard to keep talking amid the awful smell.
“We’ve had foxes and rats, literally the size of cats, flies, it’s just nasty, something needs to be done,” he says.
Chris says the situation is ‘overwhelming’ as she’s ‘terrified of rats’
Around the corner, I meet Chris, in her dressing gown, popping the bins into her bin store beneath her flat before work.
She unlocks it, and although it isn’t bursting out on to the street yet, it is getting full.
She says the situation is “overwhelming” as she’s “terrified of rats”. But, even so, she has sympathy for the striking bin workers.
“It’s not an easy job; they must have a heart of gold to do that job,” she says.
“Pay them whatever they need, they deserve it.”
Striking bin workers at Lifford Lane tip, south of the city centre
There’s an awful smell coming from a mountain of bin liners outside Mickel’s flat in Highgate
At Lifford Lane tip, south of the city centre, Brigette has pulled up alongside picketing workers. The back seat of her car is full of rubbish.
She apologises for the terrible waft, mixed with air freshener.
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“It’s very pungent, isn’t it? Not nice,” she admits.
“It’s unfortunate, I have some sympathies for all the parties, but, equally, we have a duty of care to stay clean and tidy.”
She says she has her rubbish and that of her elderly aunt and plans to make weekly trips to the tip until a resolution in this pay dispute between the council and the Unite union is found.
UK
‘US is our closest ally’, Jonathan Reynolds says in reaction to Trump tariffs – but ‘nothing off the table’
The US is “our closest ally” but “nothing is off the table” in response to Donald Trump’s 10% tariffs on imports from the UK, the business secretary has said.
In a statement following the US president’s nearly hour-long address to the world, Business and Trade Secretary Jonathan Reynolds said: “We will always act in the best interests of UK businesses and consumers.
“That’s why, throughout the last few weeks, the government has been fully focused on negotiating an economic deal with the United States that strengthens our existing fair and balanced trading relationship.”
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Mr Reynolds reiterated the statements from the prime minister and his cabinet over the past few days, saying the US is “our closest ally”, and the government’s approach is to “remain calm and committed to doing this deal, which we hope will mitigate the impact of what has been announced today”.
Business Secretary Jonathan Reynolds says “nothing is off the table” following the tariffs announcement. Pic: PA
But he continued: “We have a range of tools at our disposal, and we will not hesitate to act. We will continue to engage with UK businesses, including on their assessment of the impact of any further steps we take.
“Nobody wants a trade war, and our intention remains to secure a deal. But nothing is off the table, and the government will do everything necessary to defend the UK’s national interest.”
‘Get back round the negotiating table’, say Tories
The Conservative Party’s shadow business and trade secretary described the US president’s announcement as “disappointing news which will worry working families across the country”.
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Sky’s Ed Conway examines how economies across the world are impacted by tariffs
Andrew Griffith hit out at the government for having “failed to negotiate with President Trump’s team for too many months after the election, failed to keep our experienced top trade negotiator, and failed to get a deal to avoid the imposition of these tariffs by our closest trading partner”.
“The chancellor’s emergency budget of just a week ago with its inadequate headroom is now at risk, casting uncertainty about more taxes or spending cuts,” he continued. “Sadly, it is British businesses and workers who will pay the price for Labour’s failure.”
He called on ministers to “swallow their pride” and “get back round the negotiating table to agree a fair deal to protect jobs and consumers in both the UK and the US alike”.
Liberal Democrat leader Sir Ed Davey has reacted furiously to Mr Trump’s announcement of a “destructive trade war”, and called on the government to stand up against “Trump’s attempts to divide and rule”.
“The prime minister should bring our Commonwealth and European partners together in a coalition of the willing against Trump’s tariffs, using retaliatory tariffs where necessary and signing new trade deals with each other where possible.”
Speaking on Wednesday evening at a White House event entitled ‘Make America Wealthy Again’, the US president unleashed sweeping tariffs across the globe.
Mr Trump held up a chart detailing the worst offenders – which also showed the new tariffs the US would be imposing.
The UK’s rate of 10% was perhaps a shot across the bow over the 20% VAT rate, though the president’s suggested a 10% tariff imbalance between the two nations. Nonetheless, tariffs of 10% could directly reduce UK GDP by between 0.01% and 0.06%, according to Capital Economics.
A 25% duty on all car imports from around the world is also being imposed from midnight in the US – 5am on Thursday, UK time.
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The UK government had been hoping to negotiate an economic deal with the US in a bid to avoid the tariffs, but to no avail. The government says negotiations will continue.
The Confederation of British Industry said “negotiating stronger trading relationships with all like-minded partners will be foundational to any success”.
The business secretary is expected to make a statement in the House of Commons on Thursday, and we are also expecting to hear from the prime minister.
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