Cryptocurrency firms that operate multiple entities in different countries should be overseen by a consolidated "local" regulator to prevent them from participating in "games" aimed at circumventing regulators, the acting head of the US banking regulator has opined.
Michael Hsu, acting chief of the Comptroller of the Currency (OCC) made the comments in a prepared document. observations for the March 6 Institute of International Bankers conference in Washington, DC
The OCC is an office within the Treasury Department that regulates US banks and aims to ensure the safety of the country's banking system. has the power to allow or deny banks to participate in activities related to cryptography.
In his speech, Hsu provided "helpful lessons for cryptocurrency" from traditional banking on how to maintain trust globally.
Good to hear from the Acting Comptroller @USOCC michael hsu. #IIBAWC2023 pic.twitter.com/SWFGaUC0yv
โ IIB (@IIBnews) March 6, 2023
He stated that unless a crypto company is regulated by an entity, those who operate businesses in multiple jurisdictions will โpotentially play deceptive gamesโ through arbitrage regulations and could subsequently โmask their true risk profiles.โ
โTo be clear, not all global crypto players will do this. But we will not be able to know which players are trustworthy and which are not until a credible third party, such as a consolidated supervisor from the country of origin, can supervise them in a meaningful way.โ
โCurrently, no crypto platform is subject to consolidated supervision. Not one,โ she added.
The crash of crypto exchange FTX was used as an example of why the space needed a "household" regulator. Hsu likened the exchange to the similarly 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 Bank of Credit and Commerce International failure in 1991 that led to significant changes in the way global banks are supervised and its similarities to cryptocurrency exchange FTX. Learn more at https://t.co/HD1T3KHcss pic.twitter.com/7e45zgMbE6
-OCC (@USOCC) March 6, 2023
Hsu said the "fragmented oversight" of both companies meant that no authority or auditor could develop a "consolidated and holistic view" of them, as they operated in countries without a framework for the exchange of information between authorities.
โBy seemingly being everywhere and structuring entities in multiple jurisdictions, they were actually nowhere and were able to evade significant regulation.โ
In his reasoning for defending such oversight, Hsu stated that the arguments in Bitcoin (BTC) the whitepaper was "elegant," but cryptocurrencies "have proven to be extraordinarily complicated and complex."
He added that peer-to-peer payments are โvirtually non-existentโ and that cryptocurrencies have largely become a trade-dominated alternative asset class that relies on intermediaries to โoperate at any scale.โ
โThe events of the past year have shown that trust in these intermediaries can be quickly lost, large numbers of people can be harmed, and there can be knock-on effects in the traditional financial system.โ
Hsu said that international bodies that identified the need for a โcomprehensive global regulatory and supervisory framework for crypto participantsโ could consider the lessons learned from the BCCI case.
Related: Treasury Secretary Janet Yellen Calls for a โRobust Regulatory Frameworkโ 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 that Hsu named in particular.
The FSB, the IMF and the BIS are currently working on papers and recommendations to establish standards for a global cryptographic regulatory framework
โTrust is a fragile thing. It's hard to win and easy to lose," Hsu said.
โRegulatory coordination and supervisory collaboration can help mitigate the risks of losing that trust. We have learned this the hard way in banking. I think it contains useful lessons for cryptocurrencies."