Crypto has ‘serious deficiencies in governance’, warns Bank of England official
A Bank of England official warned there are “serious deficiencies in governance” in the crypto ecosystem today as she laid out a vision for the industry to win back trust from investors.
Carolyn Wilkins, a member of the Bank’s financial policy committee, told a conference that the crypto industry risked being overtaken by traditional finance players rolling out blockchain technologies, and said the sector should learn from the governance of regulated finance firms to recover faith from investors.
Trust has evaporated in the industry as billions of pounds have been wiped off the value of the market amid a so-called crypto winter, sparking the collapse of a number of high-profile firms including Celsius and Voyager.
Wilkins said that poor governance in the industry had proliferated and threatened to block crypto’s progress into mainstream finance.
“There are a number of serious deficiencies in governance in the crypto ecosystem that need more attention than they are getting today,” she said in a speech to the UCL Centre for Blockchain Technologies,.
“I am not claiming governance in traditional finance is perfect. But what’s at stake for crypto and DeFi (decentralised finance) is the ability to make meaningful inroads into providing services to households and businesses in the real economy.”
Firms do not get their “house in order” soon risk being usurped by traditional finance players wielding more stable governance structures who can easily win the trust of investors, she added.
“The window for the crypto industry to improve its approach to governance is narrowing: regulated firms in traditional finance are increasingly applying the underlying blockchain technology to traditional capital markets,” she added.
Regulators have been grappling with how to clampdown on cryptocurrencies in the UK and the Bank has been testing the water for the potential roll-out of a Central Bank Digital Currency.
Initial proposals were dealt a blow by politicians who described it as a “solution in search of a problem”.
The speech from Wilkins was welcomed by legal experts today however, with partner at law firm CMS describing it as an example of a “smart regulator treating crypto on its own terms”.
“The speech digs into the detailed architecture of DeFi projects, understands that the projects have some things in common but diverge widely in other ways, and recognises that certain fundamental points, for example related to decision-making, are analogous to issues that have been rehearsed for decades in Tradfi,” Charles Kerrigan said.
“Some innovators will want to keep going their own way but those that want to change the system from the inside have an issues list and guide of how to do that.”