Cryptocurrency firms operating multiple entities in different countries should be overseen by one consolidated “home” regulator to stop them from playing “games” aimed at skirting regulators, the acting head of the United States banking regulator has opined.
Michael Hsu, the acting head of the Comptroller of the Currency (OCC), made the comments in prepared remarks for the March 6 Institute of International Bankers conference in Washington, D.C.
The OCC is a bureau within the Treasury Department that regulates U.S. banks and aims to ensure the safety of the country’s banking system. It has the power to permit or deny banks from engaging in crypto-related activities.
In his speech, Hsu provided “useful lessons for crypto” 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
He claimed that unless a crypto firm is regulated by one entity, those operating with businesses in multiple jurisdictions will “potentially play shell games” by arbitraging regulations and would subsequently be able to “mask their true risk profiles.”
“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.”
“Currently, no crypto platforms are subject to consolidated supervision. Not one,” he added.
The bankruptcy of crypto exchange FTX was used as an example of why the space needed a “home” regulator. Hsu compared the exchange to the equally-defunct Bank of Credit and Commerce International (BCCI) — a global bank that was 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 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
Hsu said the “fragmented supervision” of both firms meant no one authority or auditor could develop a “consolidated and holistic view” of them as they operated across countries with no framework for information sharing between authorities.
“By seemingly being everywhere and structuring entities in multiple jurisdictions, they were effectively nowhere and were able to evade meaningful regulation.”
In his reasoning for advocating such oversight, Hsu expressed that arguments in the Bitcoin (BTC) white paper were “elegant,” but crypto “has proven to be extraordinarily messy and complex.”
He added peer-to-peer payments are “virtually nonexistent” and crypto has primarily become an alternative asset class dominated by trading activity that relies on intermediates for it to “operate at any scale.”
“The events of the past year have shown that trust in those intermediaries can be quickly lost, large numbers of individuals can be hurt, and knock-on effects to the traditional financial system can result.”
Hsu said the international bodies that identified the necessity for a “comprehensive global supervisory and regulatory framework for crypto participants” might look to the lessons learned from the BCCI case.
Related: Treasury Secretary Janet Yellen calls for ‘strong 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) were the bodies Hsu named in particular.
The FSB, IMF and BIS are currently working on papers and recommendations to establish standards for a global crypto regulatory framework
“Trust is a fragile thing. It is hard to earn, and easy to lose,” Hsu stated.
“Regulatory coordination and supervisory collaboration can help mitigate the risks of losing that trust. We have learned this the hard way in banking. I believe it contains useful lessons for crypto.”