Jon Cunliffe, deputy governor for financial stability at the Bank of England, said the risks of a growing crypto market on the financial system are “relatively limited” at the moment but have the potential to grow very rapidly if regulators do not keep pace.In a speech to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) on Oct. 13, Cunliffe said policymakers around the world have only just started to develop the framework needed to properly regulate digital assets but should pursue it “as a matter of urgency.” The deputy governor spoke about the risks that cryptocurrencies and stablecoins may pose when connected to traditional financial systems through individuals, financial institutions, hedge funds and banks.Given that digital assets are continuing to work their way into these institutions, sentiment over crypto volatility and otherwise could cause “investors to sell other assets that are judged to be risky.” Cunliffe referred to the interconnectedness of crypto and traditional finance as having the potential for a shock “transmitted through the financial system” if something were to go wrong.One of the scenarios that Cunliffe posed was if the price of an unbacked crypto asset were to fall to zero. In addition, price volatility — even seemingly among major cryptocurrencies — “could trigger margin calls on crypto positions forcing leveraged investors to find cash to meet them, leading to the sale of other assets and generating spillovers to other markets.”“Financial stability risks currently are relatively limited but they could grow very rapidly if, as I expect, this area continues to develop and expand at pace,” said Cunliffe. “How large those risks could grow will depend in no small part on the nature and on the speed of the response by regulatory and supervisory authorities.”Related: Bank of England governor issues crypto investment warningCunliffe has previously argued that England’s central bank should “issue public digital money that can meet the needs of modern day life,” implying that a digital pound may be in the BoE’s future. He is currently co-chairing a task force set up by the U.K. government to explore the rollout of a central bank digital currency.
Britain’s Financial Conduct Authority (FCA) released a supervisory notice on Wednesday, stating that prominent crypto exchange Binance is not capable of being effectively supervised and exposes users to financial risk.The FCA notice — originally dated June 25 — was in relation to Binance’s “complex and high-risk financial products” that pose a significant risk to the investors. It read: “Based upon the firm’s engagement to date, the FCA considers that the firm is not capable of being effectively supervised.”In the notice addressed to Binance Markets Limited, FCA required the crypto business to halt activities that were authorized back in April 2018 such as advising, safeguarding and dealing in crypto investments.Additionally, the financial watchdog has asked Binance to display the FCA’s decision that reads “Binance Markets Limited is not permitted to undertake any regulated activity in the UK.” This means displaying the message prominently across the www.binance.com website and any other communication channels and social media. The exchange was also asked to take down the live advertisements and promotions and “provide written confirmation of the steps it has taken to meet the requirements.”The FCA cited three main reasons for imposing restrictions on Binance, which include failing to carry out regulated activity, not satisfying the Effective Supervision Threshold Condition and not securing an appropriate degree of protection for consumers.According to the notice, Binance has also failed to share a final draft of its business plan and strategy that demonstrates prominent measures against money laundering and terror financing. In this regard, Binance told Cointelegraph:“We are committed to working with regulators and policymakers to develop policies that protect consumers, encourage innovation, and move our industry forward.”Related: UK financial watchdog orders Binance to halt ‘regulated activity’ in the countryBinance has been at the receiving end of regulatory heat across the globe and has amped up efforts to comply. In this effort, the crypto exchange has imposed lower leverage options and strict KYC requirements for all Binance users. The exchange has denied all allegations of market manipulation but still faces resistance from numerous jurisdictions including Germany, Malaysia and South Korea.