![]() footnote įTX, along with a number of other centralised crypto trading platforms, operate as conglomerates, bundling products and functions within one firm. Where they happen within one group, regulation requires separate, independent governance, to ensure the risks inherent in each is properly managed. Lending, brokering, providing an exchange platform, clearing and settlement perform different economic functions that carry different risks.įor financial market infrastructure firms, such as a central counterparty, an exchange or a custodian, the regulatory system and international standards in place aim to stop these important pieces of financial market infrastructure from taking on credit liquidity and market risk beyond what is absolutely necessary to discharge their core functions. The connections between activities carried out within the firm matter also. In this respect, transparency in corporate structures and the relationships between them is the key foundation. In a similar vein, and to prevent conflicts of interest, regulation imposes requirements and constraints on the connections between a financial firm and its affiliates, while also requiring controllers to be fit and proper. Technology in and of itself does not change the need for transparency in corporate structures, governance, audit and systems and controls – for example to protect customers’ funds. These requirements reflect the risks inherent in financial services – risks to the users, risks to other financial firms and risks more broadly to the financial system. Supervision aims to ensure that these are implemented. ![]() Regardless of the financial service activity – be it banking, insurance, exchanges, clearing houses – regulation in the conventional financial sector imposes substantive requirements. The first are fundamental issues around how financial institutions should be organised, by which I mean their corporate structure, governance, internal controls and record keeping. But while we will not know in full how it happened for some time, there do appear to be some general themes that are very familiar to those who regulate and supervise conventional financial firms and financial instruments. For anyone interested in the scale of the challenge, I can only recommend a quick read of last week’s bankruptcy filing. Untangling exactly what happened at FTX will no doubt take a great deal of time, effort and investigation by the relevant authorities. So I thought it might be worthwhile to start with a brief look at the FTX implosion to frame some of the points I intend to make on regulation of the use of crypto-related technologies to provide financial services and on why, as a central bank, we are actively exploring the issuance of a digitally native Pound sterling. But between beginning to draft these remarks and delivering them today, we have seen what is probably the largest – and certainly the most spectacular – failure to date in the crypto ecosystem, by which of course I mean the collapse of the centralised crypto trading platform FTX and most of its associated businesses. That remains the bulk of what I will talk about today. I had intended today to talk about the work the Bank of England, is doing with the Treasury, the FCA on the regulation of crypto stablecoins and our work on a potential central bank digital currency in Sterling.
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