The European Parliament’s Committee on Economic and Monetary Affairs held a hearing on the “collapse of cryptocurrency exchange FTX and its implications for the EU” on November 30. Three European monetary officials testified, speaking about FTX, blockchain technology, and cryptocurrency regulation in a “preliminary assessment of events.”
The head of the Department of Risk Analysis and Economics of the European Securities and Markets Authority (ESMA), Steffen Kern told the committee that ESMA “has not regulated or supervised FTX” and has “no information about the company beyond what is in the public domain.” ESMA does not see significant risks to the broader financial sector from the collapse of FTX, given the small share of the total market that cryptocurrencies represent and the limited connections between cryptocurrencies and traditional finance.
Kern concluded by saying that the legislation on the regulation of crypto-asset markets (MiCA), which will come into force in 2024, “is addressing the right issues to introduce vital investor protections and important rules for market participants through a common EU regime.”
#FTX? What happened?
FTX collapse is likely to cause major detriment to retail investors. The drop in value, #CryptoAssets risk and huge price volatility as well as aggressive marketing are among the implications for investors.
#ESMA statement → https://t.co/KcEAWGIa0M pic.twitter.com/z1QLhcm0bw
— ESMA – EU Securities Markets Regulator (@ESMAComms) November 30, 2022
On cross-examination, Kern said that FTX (EU) Ltd., which is domiciled in Cyprus, had received a license from the Markets in Financial Instruments Directive (MiFID), even though the license is not intended to cover cryptocurrencies. That license was suspended on November 9.
Member of the European Parliament and MiCA rapporteur Stefan Berger said of FTX at the hearing: “Basically, it was Sam Bankman-Fried and a system that depended on him. […] FTX is not the failure of blockchain technology, but the failure and arrogance of one person.” And continued:
“I have two political demands: first, MiCA must be approved as soon as possible. […] Second, it would be desirable for a large number of states outside the European Union to follow MiCA’s example. A global MiCA would be the best solution.”
Deputy Director General of the EU Union for Financial Services, Financial Stability and Capital Markets, Alexandra Jour-Schroeder, told the committee: “Under the MiCA regime, no crypto asset provider company in the EU would have been allowed to organize, perhaps better to say disorganise, the way FTX allegedly did.”
The committee heard from the President of the European Central Bank, Christine Lagrande, on November 28. He pointed to the FTX debacle as evidence of the need for additional “MiCA II” legislation.
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