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Elizabeth McCaul, a member of the supervisory board of the European Central Bank, claims that the forthcoming European Union Markets-in-Crypto assets law will not adequately regulate cryptocurrency platforms.
While the new measure is a progressive one, according to McCaul, it does not regulate exchanges based on numerical criteria.
Despite the exchange having fewer than 15 million users, the MiCA bill would not have regarded FTX as a major supplier of crypto asset services in its present form. McCaul notes that despite having between 28 and 29 million worldwide clients, even Binance might not pass muster.
Instead, she proposes that the measure be improved by indicators like trading traffic and funds held in custody.
McCaul contends that these measures should reflect the business company to which an exchange belongs rather than just a local body, citing a Basel Committee on Banking Supervision effort from the 1970s as support.
Regarding FTX, she continued that even though the exchange had fundamental risk and governance measures, regulators had no influence over how it operated in various countries.
Since leaving Japan in 2018, FTX’s rival Binance, which also functions in several countries, has kept its actual address a secret. According to McCaul, this absence of a domicile for regulation reasons does not preclude the organization from being held legally accountable.
After the exchange declared bankruptcy in November 2022, the newly appointed CEO John Ray vehemently criticized the exchange’s absence of internal company controls.
There are no standardized federal standards that mitigate the risks specific to cryptocurrencies, such as those related to using customer assets in leveraged trades and how to ensure enough liquidity for periods of high outflows, although some crypto firms have adopted a risk-management approach mandated by large financial institutions in the U.S. after the 2008 financial crisis.
Instead, the majority of exchange compliance programs concentrate on credit, liquidity, and liquidity risks, as well as regulatory and compliance risks. For outside viewers, it can be challenging to assess the efficacy of these guidelines. A more consistent strategy might increase fundamental public confidence.v
These initiatives sound positive, but I keep wondering if they are linked and organized, and if there are any holes in the processes. questioned Mark Beasley, a lecturer at North Carolina State University who specializes in business risk.
The most recent bank failures emphasize how crucial it is to implement uniform standards to guarantee openness.The Dodd-Frank Act was modified by former US President Donald Trump to permit smaller US banks to retain long-term treasury assets, which proved disastrous for the recently collapsed Silicon Valley Bank.
The bank should have kept a greater risk limit in place, according to critics like Senator Elizabeth Warren, to keep it from collapsing in the middle of March 2023. She made the case that reserves should have been held in more accessible assets, as required initially by the Dodd-Frank Act.
On the other hand, a comment document published in February 2023 detailing a new licensing program for cryptocurrency companies in Hong Kong may push risk management too far.
A wholly-owned distinct but associated entity must keep client assets on trust for crypto companies under the new regulations. It must maintain no more than 2% of client funds in hot purses. Assets belonging to clients shouldn’t be deposited, transferred, lent, or used in third-party deals by a platform provider. In order to handle risks related to client assets, it must also have an insurance policy.
Platforms must also assess each asset’s legal situation in the country where they provide trading.
