Cryptocurrency companies that operate with multiple entities in different countries should be supervised by a consolidated “home” regulator to prevent them from playing “games” aimed at circumventing regulatorshas opined the acting head of the US banking regulator.
Michael Hsu, Acting Director of the Office of the Comptroller of the Currency (OCC), made the remarks in a speech prepared for the Institute of International Bankers conference held March 6 in Washington, DC.
The OCC is an office of the Treasury Department that regulates US divisions and ensures the security of the country’s banking system.. It has the power to allow or deny banks the participation in activities related to cryptocurrencies.
In his speech, Hsu provided “helpful lessons for cryptocurrency” from traditional banking on how to maintain trust globally.
Good to hear from Acting Comptroller @USOCC michael hsu. #IIBAWC2023 pic.twitter.com/SWFGaUC0yv
— IIB (@IIBnews) March 6, 2023
Good to hear from @USOCC Acting Comptroller Michael Hsu. #IIBAWC2023
He stated that unless a cryptocurrency firm is regulated by a single entity, those that operate businesses in multiple jurisdictions will “potentially play games” arbitrating regulations and could subsequently “mask their true risk profiles.”
“To be clear, not all global cryptocurrency players will do this. But we will not be able to know which players are trustworthy and which are not until a credible third party, such as an established supervisor from the country of origin, can supervise them in a meaningful way.”
“At the moment, no cryptocurrency platform is subject to consolidated supervision. Not one,” he added.
The FTX bankruptcy was used as an example of why the space needed a “home” regulator. Hsu compared the exchange to the also defunct Bank of Credit and Commerce International (BCCI), a global bank implicated in a litany of financial crimes.
Acting Comptroller of the Currency Michael J. Hsu discusses the failure of the Bank of Credit & Commerce International in 1991 that led to significant changes in how global banks are supervised & its similarities to the crypto exchange FTX. Learn more at https://t.co/HD1T3KHcss pic.twitter.com/7e45zgMbE6
—OCC (@USOCC) March 6, 2023
Michael J. Hsu, Acting Comptroller of Foreign Exchange, discusses the Bank of Credit & Commerce International bankruptcy in 1991, which led to significant changes in the supervision of international banks, and its similarities to crypto exchange FTX. More information in
Hsu said the “fragmented oversight” of both firms meant that no authority or auditor could develop a “consolidated and holistic view” of them.since they operated in several countries without a framework for the exchange of information between authorities.
“By seemingly being everywhere and structuring entities in multiple jurisdictions, they were effectively nowhere and able to circumvent significant regulation.”
In his reasoning for advocating such oversight, Hsu called the arguments in the bitcoin (BTC) white paper “elegant,” but cryptocurrencies “have proven extraordinarily messy and complex.”
He added that peer-to-peer payments are “virtually non-existent” and that cryptocurrencies have largely become a trade-dominated alternative asset class that relies on intermediaries to “operate at any scale.”
“The events of the past year have shown that trust in these intermediaries can be quickly lost, large numbers of individuals can be harmed, and ripple effects can occur in the traditional financial system.”
Hsu said that international bodies that identified the need for a “comprehensive global supervisory and regulatory framework for crypto participants” could take into account the lessons learned from the BCCI case.
The Financial Stability Board (FSB), the International Monetary Fund (IMF), the International Organization of Securities Commissions (IOOS) and the Bank for International Settlements (BIS) were the bodies that Hsu named in particular.
The FSB, IMF, and BIS are currently working on documents and recommendations to set standards for a global regulatory framework for cryptocurrencies.
“Trust is a fragile thing. It’s hard to win and easy to lose,” Hsu said.
“Regulatory coordination and supervisory collaboration can help mitigate the risks of losing that trust. We have learned it the hard way in banking. I think it contains useful lessons for cryptocurrencies.”
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