BlocksInform
International plans to break major crypto conglomerates seem to have received a boost through FTX's collapse, allegations of misappropriation of funds revealing the worst fears of regulators.
Now major traditional finance (TradFi) players are egging on international standard setters to be yet bolder in tackling perceived excesses by the crypto sector – despite warnings from BINANCE and COINBASE that they could end up limiting the benefits of blockchain technology, documents published Wednesday reveal.
The companies were responding to a consultation opened in October 2022 in which the Financial Stability Board (FSB) proposed a “comprehensive” international crypto rulebook covering financial stability and consumer protection – just as the standard-setter sought to do for TradFi in the wake of the 2008 crisis.
The Financial Stability Board appears to have had some foresight at what point in time, last year, he warned that the main crypto companies are confronted with conflicts of interest, for example, a crypto exchange could block competition from competitors in its platform.
Just a few weeks later, CoinDesk revealed a blurring of lines between FTX and its supposedly separate trading arm Alameda Research. That snowballed into allegations of a misuse of customer funds, and that Alameda enjoyed an unlimited line of credit.
The company has now filed for bankruptcy, and former chief executive Sam Bankman-Fried on Tuesday pleaded not guilty to charges of money laundering and wire fraud in a New York courtroom.
Coming after the collapse of crypto lender Celsius, stablecoin terraUSD and hedge fund Three Arrows Capital, the turbulent year in crypto has only given extra grist to the mill of TradFi players who want crypto actors to play by the same rules.
“The arguments in favour of extending the regulatory scope are now clear [...] the regulatory approach must be global," said UK bank Standard Chartered in its response to the FSB consultation.
"blatant examples of the collapse of ftx and others" demonstrate the need to clarify how to separate and protect clients' assets, tradfi pressure group of the international financial institute told fsb.
Given the recent evolution of the market in the cryptoasset ecosystem and the uncertainty generated by the collapse of key players in the market, We support global regulators and standards organizations in their efforts to bring order and financial stability to the crypto-asset markets," said the World Association of Financial Markets, representing players in the capital market like investment banks.
In the opinion of the World Trade Federation, the membership of which includes nasdaq, the intercontinental stock exchange and the London stock market, the FSB should even "reinforce its position by demanding the separation of activities," making sure that the same standards apply as for traditional actors, where crypto companies are running platforms simultaneously, execute trades, and the possession or issuance of cryptocurrencies.
The established crypto players, meanwhile, warned the fsb not to throw the baby out with the bath water – and to address the crypto risks without hindering the benefits of its innovation.
Cryptographic hazards "should be considered correctly, and, as a result, require tailor-made adaptation and regulation," said the binary response, adding that functions should be segregated differently even if they are legally similar to conventional services.
They are joined by Coinbase's rival crypto swap, who stated that it "would be a mistake to call for separation of activities" simply because it is done for TradFi services that use "lower technology."
Combining foreign exchange services with custody would provide the benefits of real-time settlement with no significant additional risks, said the paper, presented by Faryar Shirzad, Coinbase's Policy Director.
Fsb stated that they would like to produce a final report in July, form the nucleus of a worldwide system of crypto laws, and there appears to be little evidence that he will completely soften his front position.
In December, the FSB, whose members include officials from ministries, central banks and regulators in 24 jurisdictions including the U.S., U.K. and European Union said it had drawn preliminary lessons from the FTX collapse, and reiterated the risks posed by major crypto conglomerates.
Indian finance minister, set to chair the meeting of the world’s twenty largest economies that steers the FSB’s work, has also vowed to make new crypto laws a priority.
