FTX episode illustrates need for ‘Home’ regulator: Top U.S Banking official
- FTX illustrates need for a “unified home country supervisor,” according to acting comptroller Michael Hsu
- Hsu shared “important lessons for crypto” in his address on preserving public trust in traditional banking
According to one of the United States’ most prominent banking officials, cryptocurrency companies that operate many organizations in various nations should be under the control of a single, consolidated “home” regulator. This, to prevent them from engaging in “games” meant to circumvent laws.
The words were delivered in prepared remarks by Michael Hsu, Acting Head of the Comptroller of the Currency (OCC), at the Institute of International Bankers conference on March 6 in Washington D.C.
The OCC is a division of the Treasury Department that oversees American banks and works to protect the stability of the nation’s financial system. It can approve or disapprove banks’ participation in crypto-related operations.
— IIB (@IIBnews) March 6, 2023
Crypto Lessons On Traditional Banking
In his speech, Hsu offered “valuable lessons for crypto” on upholding global confidence from traditional banking.
He asserted that those operating with firms in several jurisdictions would “possibly play shell games” by arbitraging regulations. Thereafter, they’ll be able to “hide their genuine risk profiles” unless a crypto-firm is governed by one authority. He said,
“To be clear, not all global crypto players will do this. But we won’t be able to know which players are trustworthy and which aren’t until a credible third party, like a consolidated home country supervisor, can meaningfully oversee them.”
The failure of the cryptocurrency exchange FTX was cited as evidence of the necessity for a “home” regulator in the industry. Hsu compared the transaction to that of the now-defunct Bank of Credit and Commerce International (BCCI), a large international bank that was discovered to have committed a long list of financial offences.
Previously, Kristin Smith, CEO of the Blockchain Association, a well-known charity in the U.S. crypto industry, advocated for Congress to take charge of cryptocurrency law and turn it into a more “transparent process.” One where the entire market is “comprehensively” examined.
In an interview with Bloomberg on February 22, Smith had claimed that despite the process being “extremely slow” and authorities “stepping in” in the interim, the industry wants U.S. lawmakers to lead crypto-legislation.
An alternative asset class?
Both companies functioned internationally without a system for information sharing between authorities, according to Hsu. In these cases, no one authority or auditor could have a “consolidated and holistic perspective” of them.
Peer-to-peer payments are “almost non-existent,” he continued, adding that cryptocurrency has mostly evolved into an alternative asset class dominated by trading activity that needs middlemen to “function at any scale.”
The organizations he specifically mentioned were the Financial Stability Board (FSB), the International Monetary Fund (IMF), the International Organization of Securities Commissions (IOSCO), and the Bank for International Settlements (BIS).