Policymakers should continue to regulate crypto, says BOE’s Cunliffe

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Regulators should speed up their work on putting in place effective rules for crypto, said Bank of England Deputy Governor Jon Cunliffe.

“The lesson we shouldn’t take from this episode is that ‘crypto’ is kind of ‘over’ and we don’t need to worry about it anymore,” Cunliffe said, according to the text of a speech he told the British High Commission in Singapore on Tuesday, referring to the market decline that some are calling a “crypto winter.”

There has been “a dramatic crisis of instability and loss in the crypto markets,” Cunliffe said, with about $2 trillion wiped out crypto markets in recent months. The meltdown was exacerbated by the collapse of multi-billion dollar stablecoin issuer Terra and other participants including crypto lender Celsius and hedge fund Three Arrows Capital.

Technology does not change the underlying risks in economics and finance, he said.

“Crypto technologies offer the prospect of substantial innovation and improvement in finance. But to be successful, sustainable innovation must happen in a framework where risks are managed: people don’t travel long in dangerous airplanes.

In light of recent events, international regulators are showing signs of accelerating global crypto rules. The Basel Committee on Banking Supervisionthe global standard setter for banking regulations, is preparing to issue guidance on the prudential treatment crypto assets held by banks. Meanwhile, the international financial watchdog, the Financial Stability Board, is seeking to propose crypto regulations by October.

The collapse of terraUSD (UST) may also have accelerated the rules for stablecoins, cryptocurrencies pegged to the value of real assets like the US dollar. In June, European Union policymakers agreed on a landmark regulatory framework for crypto called the Crypto Asset Markets package that focuses heavily on stablecoin regulation.

The UK government is also coordinating its efforts to produce stablecoin regulations that could be out in august. The Treasury, the financial arm of government, has already launched a consultation to govern stablecoins that could influence wider financial systems. Regulators in the UK – including the Bank of England – hope to issue a consultation paper on the regulatory policy framework for stablecoins later this year, Cunliffe said.

He added that crypto regulations should follow the “same risk, same regulatory outcome” principle, which means regulators should try to extend existing financial rules to mitigate similar risks involving crypto.

But if that fails, regulators may need to take tougher action.

“If and when for certain crypto-related activities this proves impossible, where we cannot find any way to mitigate and manage the risk to the extent necessary, i.e. to the extent that this risk is managed in other parts of the financial system, we shouldn’t let business continue,” Cunliffe said.

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