The FTX implosion should be a wake-up call for governments and financial regulators to hold this industry and its leaders accountable. FTX’s collapse forces lawmakers and regulators who have accepted the vision to regroup
The Incredible Fall of Major Crypto Exchange FTX Is Sparking Much Regulatory Discussion! With the demise of FTX, leaving thousands of customers with no funds yet, and torpedoing the cryptocurrency’s chances of acceptance, some of the major players in the industry are scrambling to regain public trust by signaling greater openness to transparency and government regulation. It is crucial to develop a clear understanding of the chain of events and management failures that led to this collapse.
“Regulators will understandably scrutinize this industry much, much harder, which is probably a good thing to be honest.”said Binance CEO Changpeng Zhao on November 11, the day FTX filed for Chapter 11 bankruptcy. Meanwhile, several other cryptocurrency exchanges announced they would voluntarily release third-party audits following the disaster of FTP extension. Ecosystem players are showing support for regulation as some industry players draw comparisons between the fall of FTX and the implosion of investment banking giant Lehman Brothers during the 2008 financial crisis. , could at least somewhat change attitudes both within and outside the industry toward regulation, raising the likelihood of tougher rules in the years ahead to continually reshape the cryptocurrency landscape.
If the digital asset industry has any real future, it must meet at least the minimum safeguards that exist for traditional financial markets. institutions to prevent or mitigate such fiascos. Expecting the industry to dictate its own standards only further exposes consumers, investors and financial markets.
For example, US crypto platforms, like traditional financial institutions, are already subject to some oversight by the Securities and Exchange Commission, the Treasury Department, and other government agencies. The White House also released a new regulatory framework in September. For six months, government agencies have worked to develop their own policy frameworks and recommendations to address a half-dozen priorities listed in the executive order: protect consumers and investors; promote financial stability; fight against illicit finance, US leadership in the global financial system and economic competitiveness, financial inclusion; and responsible innovation. Together, these recommendations form the first “whole government approach” to regulating the cryptocurrency industry in the United States.
Cryptocurrency activity has increased in recent years, crime has also increased, with the number of illicit cryptocurrency transactions rising from $7.8 billion in 2020 to $14 billion last year, according to a report by Chainalysis . Many analysts agree that even after a decade of trying to figure out how to effectively regulate cryptocurrencies, the United States and other countries continue to struggle to enforce their own regulations due to inconsistent international regulations and the ease with which criminals can create new cryptocurrency wallets. and accounts when yours is targeted by law enforcement. The most promising signs of progress for cryptocurrency regulation lie not in law enforcement efforts to catch cybercriminals and recover their ill-gotten profits, but rather in the US Treasury Department’s efforts to make it more difficult for them to receive those profits first.
“Part of the reason FTX has been able to do what it has done is because it operates in the Bahamas, a small island country with very little regulatory oversight and ability to oversee financial services businesses.”writes Brian Armstrong, CEO of Coinbase, in an editorial. “Instead of putting clear guidelines in place for cryptocurrencies, US regulators have focused on regulation through enforcement, suing US-based companies for failing to follow the rules without actually establishing what they are.”He added.
The founder of Binance wrote to him “Excessive or poorly designed regulation will kill the industry in the local market, and thus cause the local market to miss out on the next FinTech evolution. But good, carefully designed and tailored regulation will allow the industry to grow faster, not slower.“
Yet Binance and Coinbase have themselves come under investigation regarding their compliance with anti-money laundering regulations. Last month, Reuters also reported that Zhao had approved a plan to avoid scrutiny by regulators. Cryptocurrency industry lobbying is real especially in the United States but also in Europe.
Either way, the recent FTX implosion and its aftershocks are likely to give lawmakers around the world pause for now!
China classifies cryptocurrencies as property for the purpose of determining inheritance. The People’s Bank of China bans cryptocurrency exchanges from operating in the country, saying they facilitate public funding without approval. Additionally, China banned bitcoin mining in May 2021, forcing many people engaged in the activity to shut down their operations entirely or move to jurisdictions with a more favorable regulatory environment. And in September 2021, cryptocurrencies were banned altogether. However, the country is working on developing the digital yuan (e-CNY). In August 2022, it officially started rolling out the next round of its central bank digital currency test pilot program.
While there are no specific cryptocurrency laws in the UK, the country considers cryptocurrency proprietary (not legal tender) and cryptocurrency exchanges must register with the UK’s Financial Conduct Authority (FCA). Trading in cryptographic derivatives is also banned in the UK. There are cryptocurrency-specific reporting requirements related to customer knowledge standards, as well as anti-money laundering and anti-terrorism financing. In October 2022, the lower house of the British Parliament recognized cryptocurrencies as regulated financial instruments. The bill extends existing laws on payment-oriented instruments to stablecoins.
Cryptocurrency is legal in most of the European Union (EU), although the governance of exchanges depends on each member state. In recent years, the EU’s fifth and sixth anti-money laundering directives have come into force, strengthening KYC/ CFT and standard reporting obligations. In September 2020, the European Commission proposed the Cryptocurrency Markets Regulation (MiCA), a framework that strengthens consumer protection, establishes clear conduct of the cryptocurrency industry, and introduces new licensing requirements. It was enacted in 2022.