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.”
Footage of the moment 10-year-old Sara Sharif’s alleged killers were detained after police boarded their plane back to the UK has been played in court.
As they are approached by officers, Sara‘s stepmother Beinash Batool is heard saying: “I think you’re looking for us.”
Batool, 30, Sara’s father Urfan Sharif, 42, and uncle Faisal Malik, 29, are accused of carrying out a campaign of abuse against her culminating in her death at her family home in Surrey on 8 August last year.
The defendants, along with five of Sara’s siblings, aged between one and 13, flew to Pakistan the following day.
Sara’s body was found by police in a bunkbed on 10 August after Sharif called police from Pakistan to say he had beaten her “too much” for being “naughty”.
A murder investigation was launched involving agencies including Interpol and the National Crime Agency to locate the defendants.
They returned to the UK on a flight from Dubai to Gatwick Airport on 13 September.
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‘I beat her up too much’
The clips of officers’ body-worn video shown to the jury on Friday captured the moment police boarded the plane and detained the defendants at 7.42pm, seven minutes after touchdown.
After Batool addresses the officers, Sharif, who had been sitting next to her, is asked to follow them.
The three were then taken off the plane and arrested.
Pic: Surrey Police
A post-mortem examination established Sara had sustained extensive and significant injuries over a sustained period prior to her death.
The jury heard on Friday how concerns were raised by Sara’s school about bruising on her body in June 2022 and March 2023.
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Several items seized from Sara’s home were also reviewed by the court, including a leather belt which had full DNA samples at both ends for Sara, Sharif, and Malik.
A cricket bat was also found to have Sara’s DNA profile on it, along with the DNA samples of Sharif and Malik.
Neither item had a DNA trace of Batool.
The court also reviewed the defendants’ bank accounts – both joint and separate.
All three defendants have pleaded not guilty to murder and causing or allowing the death of a child.
The trial continues.
Six teenagers have been arrested after a 13-year-old girl was found with multiple stab wounds on a roadside near Hull.
Police said she was found around 6.50am on the A63 in Hessle with “life-threatening injuries” including “lacerations to her neck, abdomen, chest and back”.
Four boys and two girls – aged between 14 and 17 – were quickly arrested in a nearby wooded area and are being questioned on suspicion of attempted murder.
Members of the public came to the girl’s aid before emergency services arrived, Humberside Police said.
Detective Superintendent Simon Vickers said they “believe the attackers knew the victim” and the circumstances are still being investigated.
“The girl remains in hospital in critical condition and her family are being supported by officers at this difficult time,” he added.
The boys arrested are aged 14, 15, 16 and 17, and the girls 14 and 15.
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Cordons are in place around a wooded area off Ferriby High Road while investigations continue.
Police said they would have an increased presence in the area over the weekend and have asked anyone with information or video to get in touch, or contact Crimestoppers anonymously.
UK
Ex-soldier Daniel Khalife tells court it was a ‘foolish idea’ to have someone with his ‘skillset’ in prison
A former soldier has told a jury his escape from Wandsworth prison to avoid being held with sex offenders and terrorists showed his “skillset”.
Daniel Khalife, 23, who was being held accused of passing secrets to Iran said he was “never a real spy” but planned a fake defection to the state following his arrest after watching American television show Homeland.
He said he wanted to be moved to a high-security unit because he was getting unwanted attention from the sex offenders on the vulnerable prisoners wing and feared a move to Belmarsh prison because, as a British soldier, terrorists wanted to kill him.
Khalife said he first wanted to “make a show” of escaping, acting suspiciously and covering himself in soot from a food delivery lorry on 21 August last year, while he was working in the prison kitchen.
He was spotted and reported to security but was “pretty shocked” when nothing happened so decided to take the “full measure,” he told the jury.
A makeshift sling. Pic: Met Police
Talking about his escape for the first time at his Woolwich Crown Court trial, Khalife told how he fashioned a makeshift sling from kitchen trousers and carabiners used by inmates to keep their possessions safe from rats.
He attached it to the Bidfood lorry on 1 September last year, to see if it would be spotted by officers at Wandsworth or other prisons on the delivery route.
“I put the two carabiners and the makeshift rope underneath the lorry,” he said.
“When I had made the decision to actually leave the prison I was going to do it properly so I tested the security not just in Wandsworth
“Strangely, over the coming days, I could see it but it wasn’t spotted in Wandsworth or any other prison.”
Then on the morning of 6 September, Khalife said he concealed himself underneath the lorry, resting his back on the sling as the lorry was searched.
“They did normal checks around with torches but they didn’t find me. After that, a governor came to the tunnel and said, ‘Have you searched the vehicle?’
“I was facing upwards. There was action around the lorry.”
Daniel Khalife joined the Army aged 16
He said that when the vehicle stopped he “came out underneath the lorry and stayed in the prone position” until the lorry moved off.
Khalife, who joined the Army aged 16 and took up a post with the Royal Signals, based in Beacons barracks, Staffordshire, said he made no attempt to leave the country and had no intention to “run away” from the charges he was facing.
He was arrested three days later on the footpath of the Grand Union Canal in Northolt, west London, after a nationwide manhunt.
Asked why he had not handed himself in after his escape, Khalife said: “I was finally demonstrating what a foolish idea it was to have someone of my skillset in prison. What use was that to anyone?”
“I accept that I left the prison and didn’t have any permission to do so,” he said. “I accept absolutely that I shouldn’t have done what I did.”
Daniel Khalife
Inspired by Homeland
The court has heard Khalife initiated contact with Iranian intelligence officers after he was told he could not pass developed vetting because his mother was born in Iran.
Khalife told MI5 he wanted to be a “double agent” and he said in court he thought he would be “congratulated” but described his arrest as like a “punch in the face”.
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Wearing a blue checked shirt and chinos, he said police were “blinded at the prospect of a successful prosecution” but he did not think being in prison would be in “the public interest”.
“I didn’t do anything that harmed our national security. I wanted to put myself in a position where I could help my country,” he said.
“I believed I could continue my work actually located in the state – the state being Iran.”
Khalife said he took inspiration from watching Homeland, starring Claire Danes and Damian Lewis, in which Americans and terrorists go undercover, on Netflix.
“I had seen one of the characters in the programme had actually falsely defected to a particular country and utilised that position to further the national security interests of that character’s country,” he said.
“The country in question, Iran, thought it was real. She did it to further the interests of her own country.”
Khalife told jurors he is a “patriot”, adding: “I do love my country. All I wanted to do was help. I never wanted to do any harm, I never did do any harm.”
He added: “It is tragic it has come to this and I would do anything to go back to my career.”
Khalife, from Kingston, southwest London, denies a charge of committing an act prejudicial to the safety or interests of the state under the Official Secrets Act between 1 May 2019 and 6 January 2022.
He has also pleaded not guilty to a charge under the Terrorism Act of eliciting information about Armed Forces personnel on 2 August 2021, perpetrating a bomb hoax on or before 2 January 2023 and escaping from prison on 6 September last year.
The trial continues.
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