Cryptocurrency companies that operate multiple entities in different countries should be overseen by a joint “house” regulator to prevent them from playing a “game” aimed at following regulators, the head of the United States banking regulator’s action has said.
Michael Hsu, Acting Chief Comptroller of the Currency (OCC) made these comments in remarks prepared for the March 6 International Bank Institute conference in Washington, DC
The OCC is a bureau within the Treasury Department that regulates US banks and aims to ensure the safety of the nation’s banking system. It has the power to allow or deny banks to engage in crypto-related activities.
In his speech, Hsu provided “useful lessons for crypto” from traditional banking on how to maintain trust globally.
Glad to hear from the Acting Comptroller @USOCC Michael Hsu. #IIBAWC2023 pic.twitter.com/SWGaUC0yv
— IIB (@IIBnews) March 6, 2023
He claims that crypto companies are not regulated by a single entity, that operating with businesses in different jurisdictions will “potentially play a shell game” with regulatory arbitrage and will be able to “cover their true risk profile.”
“To be clear, not all global crypto players will do this. But we will not be able to know which players are trustworthy and not until a reliable third party, like an integrated home country watchdog, can significantly monitor.
“Currently, no crypto platform is subject to joint supervision. Not one,” he added.
The bankruptcy of the crypto exchange FTX is used as an example of why the board needs a “house” regulator. Hsu compared the exchange to the similarly defunct Bank of Credit and Commerce International (BCCI) – a global bank found to be involved 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 which led to significant changes in the way global banks are supervised & similar to crypto exchange FTX. Learn more at https://t.co/HD1T3KHcss pic.twitter.com/7e45zgMbE6
– OCC (@USOCC) March 6, 2023
Hsu said the “fragmented oversight” of the two companies meant neither authority nor auditor could develop a “combined and holistic view” as they operated in countries where there was no framework for sharing information between authorities.
“By appearing everywhere and structuring entities in multiple jurisdictions, they are nowhere to be found and can avoid meaningful regulation.”
In his reasoning for advocating the oversight, Hsu stated that the arguments in the Bitcoin (BTC) whitepaper are “elegant” but that crypto “has proven to be incredibly messy and complicated.”
He added that peer-to-peer payments are “virtually non-existent” and that crypto is primarily an alternative asset class dominated by trading activities that rely on intermediaries to “operate at any scale.”
“The events of the past year show that trust in these intermediaries can be lost very quickly, many people can get hurt, and the effects can have on the traditional financial system.”
Hsu said that international bodies that determine the need for a “comprehensive global regulatory and supervisory framework for crypto participants” may look to the lessons learned from the BCCI case.
related: Treasury Secretary Janet Yellen called for a ‘robust regulatory framework’ for crypto activities
The Financial Stability Board (FSB), the International Monetary Fund (IMF), the International Organization of Securities Commissions (IOSCO) and the Bank for International Settlements (BIS) are special bodies named by Hsu.
FSB, IMF and BIS are currently working on papers and recommendations to establish global crypto regulatory framework standards.
“Trust is a fragile thing. It’s hard to get, and easy to lose,” Hsu said.
“Regulatory coordination and supervisory collaboration can help reduce the risk of losing that trust. We have learned this the hard way in banking. I believe this contains valuable lessons for crypto.