##regulated spaces. but it will only be developed and adopted at scale within a framework that manages risks to existing standards. and by holding innovative approaches, using technological advance, to the same standards as existing approaches we can ensure that the benefits of new technology and new business models actually flow form innovation rather than from regulatory arbitrage. this in turn, determines the answer to the second question of ‘ how ’ regulation should be extended to these areas. the guiding principle should be ‘ same risk, same regulatory outcome ’. the starting point should be our existing regulatory frameworks – for investment products, for exchanges, for payments systems and other financial functions – and the level of assurance we require that the relevant risks have been managed. technological change and different business models may mean we have to find new ways to deliver that assurance. we should be under no illusions that this will always be an easy process. for example, as i have said, it remains for me a very uncertain question whether use of the permission - less blockchain could deliver the necessary level of assurance for activities that are integral to the stability of the financial system. our approach as regulators should be open – by which i mean we should be prepared to explore whether and if so how the necessary level of assurance – equal to that in conventional finance could be attained. but we should also be firm that where it cannot, we are not prepared to see innovation at the cost of higher risk. this is very much the approach we are looking to take in the uk for the extension of the regulatory framework to the use of crypto technologies and business models in finance. the financial services and markets bill, currently in parliament addresses the regulation of payment systems using “ digital settlement assets ” defined as “ digital representations of value ” – in other words digital tokens representing money. the objective is to extend the current bank of england and fca regulatory regimes for e - money and payment systems to cover the use ‘ stablecoins ’ for payments [ 7 ]. the powers in the bill will extend not only to the systems for transferring such coins between parties to make payments, but to the issuance and storing of the coins. the bank will have responsibility for such payment systems which are systemic or likely to become systemic. this will apply whether such systems exist to make payments for real things or for crypto assets should the latter activity become systemic in scale. we intend early next year to consult in detail the regulatory framework that will apply to such systemic payment systems and the

have happened with ftx, creates extreme ‘ wrong way ’ risk – i. e. when the exposure to a counterparty increases together with the risk of the counterparty ’ s default [ 2 ]. indeed, in the ftx case, there are indications that it could have been a run on its crypto coin, ftt, which triggered the collapse. moreover protection of client funds is crucial. in many of these platforms the platform takes possession of the cryptographic keys and manages transactions on the ledger for a pool of assets. it is far from clear whether these practices deliver the assurance of either custody of assets in the conventional finance world or of a claim on the balance sheet in the way that occurs with accounts at a bank. ‘ crypto ’ was born in unregulated space : indeed, part of the objectives of its early developers was to create a financial system outside regulation. while not yet of systemic scale, the crypto ecosystem has grown very rapidly in recent years and broadened to encompass a range of financial services. the experience of the past year has demonstrated that it is not a stable ecosystem. part of this is because, its foundation is completely unbacked instruments of extreme volatility that can swing wildly in value. but part is also because the crypto institutions at the centre of the much of the system exist in largely unregulated space and are very prone to the risks that regulation in the conventional financial sector is designed to avoid. it is in part for this reason that, since september, the fca has warned publically on ftx that “ this firm may be providing financial services or products in the uk without our authorisation … you are unlikely to get your money back if things go wrong ” [ 3 ]. some, of course, would argue that the answer is not proper regulation of the risks in centralised crypto platforms, like ftx, but rather the development of decentralised finance in which functions like lending, trading, clearing etc. take place through software protocols built on the permissionless blockchain. in such a world, it is effectively the ‘ code ’ that manages the risks rather than intermediaries. and indeed, there is some tentative and limited evidence that the failure of ftx has stimulated some transfer of activity to decentralised platforms. from the standpoint of a financial stability authority and a financial regulator, i have yet to be convinced that the risks inherent in finance can be effectively managed in this way. that