Wild West crypto faces crackdown as disgraced FTX boss is arrested and charged with fraud

The Bank of England sounded a fresh warning over the risks of cryptocurrency yesterday as the founder of collapsed exchange FTX was charged with fraud.

Officials at Threadneedle Street said the demise of the high-profile company – led by Sam Bankman-Fried – owing billions of dollars to investors showed tougher rules were needed.

And Bank governor Andrew Bailey reiterated his long-held scepticism about crypto assets, whose value has fallen from a peak of around £2.4 trillion a year ago to £650billion.

Warning: Bank governor Andrew Bailey reiterated his long-held scepticism about crypto assets, whose value has fallen from a peak of around £2.4 trillion a year ago to £650bn

‘I’ve been very clear over the last four years – crypto doesn’t have intrinsic value and investors should be prepared to lose all their money,’ he said.

The comments came as the head of global regulatory body the Financial Stability Board signalled a coming crackdown on the Wild West industry, with watchdogs laying out steps to regulate crypto in early 2023 and enact them swiftly.

Dietrich Domanski, the outgoing secretary-general of the global club of central banks, told the Financial Times that ‘recent events have reinforced the recognition that it is indeed urgent to address risks’.

The Bank of England, which yesterday published its twice-yearly assessment of risks to financial stability, said dangers posed by crypto in the UK were limited at the moment.

But recent events including the FTX collapse ‘highlighted how systemic risks could emerge’.

They also ‘further underscore the need for enhanced regulatory and law enforcement frameworks to address developments in crypto markets and activity’.

The Bank highlighted the opaque nature of crypto firms and links between them, and a lack of safeguards against creditors taking fright, cash running out or market swings, as well as the absence of protection for money held by firms on behalf of clients.

It pointed to the ‘high volatility’ of so-called ‘unbacked’ cryptoassets that are not linked to any real-world assets. 

These can cause ‘extreme’ risk when used as collateral to raise more funds, the report said. 

The collapse of FTX in November, after investors tried to withdraw billions in funds amid fears for its financial health, is the biggest failure yet in the crypto industry. Around 1m investors including an estimated 80,000 in the UK face losing money.

FTX’s 30-year-old founder was feted by the likes of Tony Blair and Bill Clinton, and endorsed by stars such as Gisele Bundchen and Larry David. 

His company grew to become the world’s second biggest crypto exchange and his net worth hit £26billion.

Bankman-Fried was arrested in the Bahamas on Monday and yesterday was charged by America’s Securities and Exchange Commission with orchestrating a scheme to defraud investors.

It alleged he had raised more than £1.4billion from equity investors since May 2019 by promoting FTX as a safe, responsible platform for trading crypto assets, but diverted funds to Alameda Research, his privately-held crypto fund, without telling them.

This post first appeared on Dailymail.co.uk