Cunliffe, Deputy Governor of Bank of England warns that decentralized finance protocols are not reliable in mitigating risk.
Cunliffe stated that code can only be as good as the people, rules and processes that created it. Next year, the BoE will be consulting on a new regulatory framework to regulate digital assets.
The Bank of England deputy governor warned Monday that decentralized finance protocols are not yet an effective way of managing risk.
Jon Cunliffe stated that DeFi’s claim that a code can manage risks rather than intermediaries is not supported. He spoke to a crowd at Warwick Business School. He stated that he was still not convinced that finance’s risks can be managed effectively from the perspective of both a financial regulator and financial stability authority.
Cunliffe said that DeFi protocols were like driverless cars.
He claimed they are only as good and reliable as the rules, programs, and sensors that organize them.
He added that it was not clear how decentralized these platforms are. “These protocols often have firms and stakeholders that derive revenue from their operations. It is not always clear who controls the governance of these protocols.
Cunliffe stated that the Bank of England will host a consultation next spring on the regulatory framework for a digital asset payment scheme, which includes the use of services such as wallets.
Once the Financial Services and Markets Bill is passed through parliament and becomes law, the central bank and Financial Conduct Authority will be able to supervise stablecoins and other crypto related technologies.
Cunliffe stated that the UK Treasury will also consult on ways to increase investor protection, market integrity, and other regulatory frameworks to cover the promotion and trade of financial products to entities and activities involving crypto assets.
He added that at the moment, anti-money laundering legislation does not apply to these activities.