The collapse of cryptocurrency exchange FTX happened in an international regulatory vacuum that allowed the firm to hide fraudulent activity and operate with a “stunning” lack of basic risk management controls, Acting Comptroller of the Currency Michael Hsu said today. Speaking at an international banking conference, Hsu compared the rise and fall of FTX to that of BCCI, which collapsed in the 1990s after regulators in multiple counties discovered the bank had been involved in money laundering and other financial crimes. Both faced fragmented supervision by a combination of state, federal and foreign authorities, and both operated across jurisdictions where there was no established framework for regulators to share information on either business’s activities, he said.
“Fortunately, international bodies like the Financial Stability Board, International Monetary Fund and CPMI/IOSCO have recognized the need for a comprehensive global supervisory and regulatory framework for crypto participants, and can perhaps look to the BCCI experience as a model,” Hsu said. “Until that is done, crypto firms with subsidiaries and operations in multiple jurisdictions will be able to arbitrage local regulations and potentially play shell games using inter-affiliate transactions to obfuscate and mask their true risk profiles.”
Hsu added that not all cryptocurrency firms behave like FTX. “But we won’t be able to know which players are trustworthy and which aren’t until a credible third party, like a consolidated home country supervisor, can meaningfully oversee them,” he said. “Currently, no crypto platforms are subject to consolidated supervision. Not one.”
