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.
Image: 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.”
A man shot dead in northwest London has been named as 55-year-old Simon Whyte.
Detectives from the Metropolitan Police‘s Specialist Crime Team are appealing for witnesses, information and anyone with dashcam footage to come forward following the incident in Stonebridge, Brent, on Friday evening.
They are particularly keen to hear from a small group who were congregated nearby at the time.
Detective Chief Inspector Neil John said his thoughts were with Mr Whyte’s family and friends at this “incredibly difficult time”.
He added: “There’s no doubt this incident will cause concern in the local community and more widely, but we have increased patrols in the area.
“I’d like to reassure the public that our investigation remains a priority.”
He continued: “I would urge anyone who may have witnessed the incident or has information, including dashcam footage, that will assist us with our enquiries to contact us at the earliest opportunity.”
The Christmas period is upon us, and goods are flying off the shelves, but for some reason, the tills are not ringing as loudly as they should be.
Across the country, the five-finger discount is being used with such frequency that retailers are taking action into their own hands.
With concerns about the police response to shoplifting, many are now resorting to controversial facial recognition technology to catch culprits before they strike.
Sainsbury’s, Asda, Budgens and Sports Direct are among the high-street businesses that have signed up to Facewatch, a cloud-based facial recognition security system that scans faces as they enter a store. Those images are then compared to a database of known offenders and, if a match is found, an alert is set off to warn the business that a shoplifter has entered the premises.
It comes as official figures show shoplifting offences rose by 13% in the year to June, reaching almost 530,000 incidents. Figures reported in August showed more than 80% result in no charge.
At the same time, retailers are reporting more than 2,000 cases of violence or abuse against their staff every day. Faced with mounting losses and safety concerns, businesses say they are being forced to take security into their own hands because stretched police forces are only able to respond to a fraction of incidents.
Image: A Facewatch camera
At Ruxley Manor Garden Centre in south London, managing director James Evans said theft had become increasingly brazen and organised, with losses from shoplifting now accounting for around 1.5% of turnover. “That may sound small, but it represents a significant hit to the bottom line,” he said, pointing out that thousands of pounds’ worth of goods can be stolen in a single visit.
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“We have had instances where the children get sent in to do it. They know that the parents will be waiting in the car park and they’ll know that there’s nothing that we can do to stop them.”
Image: Gurpreet Narwan is seen at the garden centre while being shown how Facewatch works
Staff members here have also had their fair share of run-ins with shoplifters. In one case, employees trying to stop a suspected shoplifter were nearly struck by an accomplice in a car. “This is no longer just about stock loss,” said James, “It is about the safety of our staff.”
However, the technology is not without its critics. Civil liberties groups have warned that the expansion of this type of technology is eroding our privacy.
Silkie Carlo, director of Big Brother Watch, called it “a very dangerous kind of privatised policing industry”.
Image: Facewatch is seen in operation as retailers look to crack down on crime.
“[It] really threatens fairness and justice for us all, because now it’s the case that just going to do your supermarket shopping, a company is quietly taking your very sensitive biometric data. That’s data that’s as sensitive as your passport, and [it’s] making a judgement about whether you’re a criminal or not.”
Silkie said the organisation was routinely receiving messages from people who said they had been mistakenly targeted. They include Rennea Nelson, who was wrongly flagged as a shoplifter at a B&M store after being mistakenly added to the facial recognition database. Nelson said she was threatened with police action and warned that her immigration status could be at risk.
Image: Gurpreet’s profile can be seen on the Facewatch database
“He said to me, if you don’t get out, I’m going to call the police. So at that point I turned around and I was like, are you speaking to me? Then he was like yes, yes, your face set off the alarm because you’re a thief… At that point, I was around six to seven months pregnant and I was having a high-risk pregnancy. I was already going through a lot of anxiety and, so him coming over and shouting at me, it was like really triggering me.”
The retailer later acknowledged the error and apologised, describing it as a rare case of human mistake.
A spokesperson for B&M said: ‘This was a simple case of human error, and we sincerely apologise to Ms Nelson for any upset caused. Reported incidents like this are rare. Facewatch services are designed to operate strictly in compliance with UK GDPR and to help protect store colleagues from incidents of aggressive shoplifting.”
Image: The cloud-based technology has critics who argue that it amounts to a misuse of personal data and privacy
Nick Fisher, chief executive of Facewatch, said the backlash was disproportionate.
“Well, I think it’s designed to be quite alarmist, using language like ‘dystopian’, ‘orwellian’, ‘turning people into barcodes’,” he said.
“The inference of that is that we will identify people using biometric technology, hold and store their own, store their data. And that’s just, quite frankly, misleading. We only store and retain data of known repeat offenders, of which it’s been deemed to be proportionate and responsible to do so… I think in the world that we are currently operating in, as long as the technology is used and managed in a responsible, proportionate way, I can only see it being a force for good.”
Rogue retailers exposed in shoplifting crackdown
Yet, there is obviously widespread unease, if not anger, at the proliferation of this technology. Businesses are obviously alert to it, but the bottom line is calling.
Jeffrey Epstein led two different lives – sex offender and celebrity networker – and he did that in the UK as well as the US.
The newly released Epstein documents reveal, in particular, how the paedophile financier ascended into the highest levels of British society.
This photo of Andrew Mountbatten-Windsor sprawled across the lap of several women, whose identities have been protected, speaks to his close relationship with Epstein’s former girlfriend Ghislaine Maxwell, who was jailed for child sex trafficking and other offences in connection with Epstein. But the furnishings are even more revealing.
Image: Andrew Mountbatten Windsor pictured with Ghislaine Maxwell. Note: inclusion in Epstein files does not infer wrongdoing
Sky News matched the fireplace in this photo with the one in Sandringham, the estate where the royals tend to spend Christmas – (Andrew is not invited this year).
Andrew has vigorously denied any accusations against him.
Image: Prince Charles, now King Charles III, at Sandringham with Prince Edward. Pic: PA
Also included in the latest release are Epstein’s flight records. They provide some useful corroborating evidence.
Image: A flight log from the Epstein files
On 9 March 2001, his plane landed at “EGGW” – Luton Airport – with JE, GM and VR on board – Jeffrey Epstein, Ghislaine Maxwell and Virginia Roberts, better known by her married name of Virginia Giuffre and perhaps Epstein’s most famous accuser.
The next day is when this photo was alleged to have been taken, in London, of Giuffre and Andrew.
Image: Prince Andrew, Virginia Roberts, aged 17, and Ghislaine Maxwell at Ghislaine Maxwell’s townhouse in London, in March 2001
Image: Jeffrey Epstein and Ghislaine Maxwell hunting, date unknown. Pic: US DoJ
Other photos show Maxwell on the steps of Downing Street – and power was as much a draw as celebrity.
Image: Ghislaine Maxwell outside 10 Downing Street, date unknown. Pic: US DoJ
On 15 May 2002, the flight records show Epstein again arriving at Luton.
Image: A flight log from the Epstein files
The next day is when he met Tony Blair, prime minister at the time. This was before Epstein’s first arrest and there is no suggestion of wrongdoing.
The meeting was arranged by Peter Mandelson, who lost his job as ambassador to the US because of his Epstein connections, and who features prominently in the files.
Image: Peter Mandelson and Jeffrey Epstein. Pic: US DoJ
The UK was a draw for Epstein’s wider circle too – Maxwell here is pictured touring the Churchill War Rooms with Bill Clinton and Kevin Spacey. Neither are accused of wrongdoing or knowledge of Epstein’s crimes.
Image: (L-R) Ghislaine Maxwell, Kevin Spacey and Bill Clinton, with three other men. Pic: US DoJ
And the other grim life that Epstein led, of sex trafficking, also had British links.
Image: A page from the Epstein files
Another document released in the files, from 2019, shows witness testimony from Maxwell’s trial. In it, a victim is mentioned who is “17 years old” and who grew up “in England”. She would later be taken to Epstein’s private Caribbean island.