Central Bank of Ireland’s Gabriel Makhlouf promises tighter control of cryptocurrency ‘Ponzi schemes’

Central Bank Governor Gabriel Makhlouf, a longtime critic of the industry, said regulators were concerned about the potential for cryptocurrencies to cause harm to consumers.

He also hinted that the Central Bank is ready to crack down on crypto-influencers promoting crypto products online without disclosing their related financial interests.

“Buying such products can be similar to buying a lottery ticket: you may win, but you probably won't,” Makhlouf wrote in a blog post posted on the Central Bank's website.

“And to describe it as 'investment' is, of course, an abuse of the word; 'Ponzi schemes' might be more accurate."

His comments come two weeks after the European Parliament agreed its first package of regulations to manage prudential and consumer risk in the crypto industry.

The Markets in Crypto Assets (MiCA) regulations set common standards across Europe for overseeing crypto firms, allowing regulators to track transactions and introduce rules against market manipulation.

Makhlouf said the central bank was discouraging cryptocurrency trading to the public due to its misunderstood risks and "aggressive advertising."

“One of my particular concerns remains aggressive advertising, which is sometimes false or misleading, by using 'influencers' to promote cryptocurrency without disclosing the fact that they are paid,” he wrote.

However, Makhlouf made a distinction between most crypto assets and tokens that are backed by reserves and capital controls, saying that the Central Bank “remained open” to backed cryptocurrencies.

However, he noted that regulators in Ireland and the EU would tighten controls on the industry following the “crypto winter” that saw the collapse of stablecoin TerraUSD and crypto exchange FTX.

“In the case of cryptocurrencies, this market is developing at a fast pace and the risks for consumers and investors are increasing, especially as these products remain unregulated,” he said.

"While the market itself, including so-called 'influencers,' often talks about the potential opportunities around cryptocurrencies, regulators around the world have long been talking about the risks consumers face when interacting with cryptocurrencies. the sector".

He said that cryptocurrencies would be supervised like any other financial market in proportion to the risks they pose, adding that cryptocurrency companies would eventually have to protect client funds, maintain high governance standards, and disclose relevant information just like major financial companies.

Mr. Makhlouf has spoken regularly in recent years about the risks of allowing the cryptocurrency industry to go unregulated, calling cryptocurrency assets "highly speculative."

Earlier in the year, crypto platform Coinbase was one of several fintech companies targeted by the central bank in a highly critical "Dear CEO" letter after a review found significant deficiencies in the way some companies protect customers' money.

Fintech companies, including some that deal in crypto, are now being forced to submit special audits detailing how they segregate customer funds and prevent money laundering.

Regulators have warned CEOs that if they don't fix the problems, they could face enforcement action, hefty fines and costly risk mitigation programs.