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FTX’s collapse continues to make waves with regulatory and supervisory bodies

Compliance Insight FTX

Christine Lagarde, president of the European Central Bank, stated that Europe is “ahead of the pack” in regards to regulations and supervision of the crypto market. Steffen Kern, Head of the European Securities and Markets Authority (ESMA) Risk Analysis & Economics Department, stated that ESMA does not have any information on FTX beyond what ispublically available.

Senator Sherrod Brown sent a letter to US Department of Treasury Secretary Janet Yellen asking for greater involvement in implementing recommendations from FSOC report on Digital Asset Financial Stability Risks and Regulation.

Find more detailed information below

Europe

Christine Lagarde, president of the European Central Bank stated on November 28 at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament that although the crypto market still requires strengthening in regulations and supervision, Europe is “ahead of the pack” having taken “one step in the right direction” with the passing of MiCA. It was announced that MiCA II would have to follow, representing additional legislation building on the provisions of the original bill and “should regulate the activities of crypto-asset staking and lending, which are definitely increasing.”

On November 30th, the European Parliament Economic and Monetary Affairs Committee held a hearing on the repercussions FTX’s collapse may have for the EU. At this hearing, Steffen Kern, the Head of the European Securities and Markets Authority (ESMA) Risk Analysis & Economics Department, stated that ESMA does not have any “information on the company beyond what is in the public domain” as it did not regulate, nor supervise the entity. He commented that MiCA “is tackling the right issues to introduce vital protections for investors and important rules for market participants through a common EU regime.”.His statement was reinforced by Alexandra Jour-Schroeder who claimed that “under the MiCA regime, no companies providing crypto assets in the EU would have been allowed to be organised, perhaps it’s better to say disorganised, in the way FTX reportedly was.”

US

OFAC – Senator Sherrod Brown

Senator Sherrod Brown, Chairman of the Senate Banking Committee, sent a letter on November 30th to the US Department of Treasury Secretary Janet Yellen asking for the Treasury to be more heavily involved in implementing the recommendations stated by the FSOC report on Digital Asset Financial Stability Risks and Regulation issued October 2022, specifically to coordinate with other financial regulators in the development of legislation which “would create authorities for regulators to have visibility into, and otherwise supervise, the activities of the affiliates and subsidiaries of crypto asset entities”. The Senator offers his support in assisting the Treasury in this development, welcomes financial regulators to “assess the impact of vertical integration in crypto asset markets” provides insight into the need for additional legislation, or regulation to address risks and vulnerabilities, and urges “agencies to vigorously enforce existing laws to address financial stability risks and protect consumers”.

„By using existing supervisory and regulatory authorities to address current and emerging risks, regulators can take on the significant noncompliance with current law among crypto asset firms and minimize, if not eliminate, the opportunities for regulatory arbitrage. Finally, as the FTX failure makes clear, given crypto asset entities’ broad use of proprietary crypto tokens combined with opaque financial arrangements and the reliance on arbitrary valuation and data sources, the financial regulatory agencies should continue to find ways to enhance entity and crypto asset disclosures, market integrity, and transparency.”

Lummis – Gillibrand’s Responsible Financial Innovation Act

Lummis introduced a bipartisan crypto bill with Democratic Senator Kirsten Gillibrand in June 2022, considered as the most comprehensive bipartisan effort to create a regulatory framework for digital assets. 

Lummis stated in an interview on November 28, that the bill, forwarded to the Senate finance committee, focuses on banning the commingling of user assets with investments that belong to an exchange, thus addressing the more prevalent industry outcry to impose stricter legislation around conglomerates like FTX.

The Congress will discuss the bill in January 2023, when Lummis is continuously working with US Securities and Exchange Commission to ensure her bill is all-encompassing and does not create loopholes for some non-crypto companies to evade oversight.