(Bloomberg) -- A senior Chinese central bank official called for stronger regulation of digital finance, citing recent banking failures linked to US lenders involved in cryptocurrency transactions. 

“Risks and fraud associated with cryptocurrency, including the two American banks who ran into troubles after providing many services for crytocurrency from taking deposits to settlement, showed that regulators should respect rules when innovating regulation,” Xuan Changneng, a deputy governor at the People’s Bank of China, said Friday at a panel at the Boao Forum.

While there must be sufficient room for innovation, authorities need to “verify and confirm the new technologies applying to various financial models and products, rather than simply accepting or approving them,” he said. “The regulation philosophy, technology and capability must be upgraded to ensure financial innovation won’t come at the cost of financial stability,” he said.

Xuan didn’t name the US lenders, but the three banks at the center of the ongoing banking crisis there — Silvergate Capital Corp., Signature Bank and Silicon Valley Bank — were, at least at one point, counted among the US’s most cryto-friendly financial institutions. US prosecutors were investigating Signature Bank’s work with crypto clients before regulators seized the lender.

Chinese officials have long had a hardline approach to the crypto industry. In 2017, the PBOC declared initial coin offerings illegal and asked all related fundraising activity to be halted immediately, dealing a blow to the then-burgeoning market for digital token sales that regulators deemed a threat to financial stability.

Liao Min, a vice finance minister, warned during the same Boao Forum panel of possible fragmentation of digital financial infrastructure going forward. He said China needs to get “deeply” involved in international cooperation and coordination of standard making.  

Li Bo, a deputy managing director at the International Monetary Fund, added that central banks globally should consider digitizing their reserves as a part of measures to improve the efficiency of cross-border payment.

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