American Banking Association Says Crypto Companies Must Be Regulated Like Banks. President and CEO of the American Bankers Association, Rob Nichols said the recent collapse of crypto exchange FTX shows the cryptocurrency market needs regulation like banks.
Recent turmoil in the crypto sector, including the sudden FTX liquidity crunch and a spectacular collapse, has renewed the concept of ‘bank run’ scams. But this time, the escape didn’t happen at a banking company at all.
In contrast, many crypto asset customers have accounts with nonbank crypto companies. When the company went bankrupt, customers found their withdrawals slowed down and were then frozen by the company in a desperate attempt to stay able to pay.
Read Also: Ferrari Ends Relationship With Crypto Sponsor Ahead Of 2023 Formula One Season
Customers are forced to watch helplessly as their account drops to zero. This is very similar to what happened to nonbank financial firms during the 2008 financial crisis and would have happened when the 2020 pandemic hit had the Fed not acted so quickly.
“The financial crisis has proven the non-bank sector is not just a fringe player in our global financial system; they are very important and very much related to the banking system and the economy and can threaten financial stability,” said Nichols, quoted from CNBC, Wednesday, January 11, 2023.
Nichols added, crypto and other non-bank companies pose significant and increasing risks to the financial system that need to be better understood and regulated.
“That means both bank and non-bank providers of these products must be subject to the same underwriting requirements, the same regulatory and risk management standards, the same cybersecurity and anti-fraud protections, and the same consumer protection standards,” explains Nichols.
Meanwhile, according to him, the “equal risk, equal rules” principle ensures a competitive market with a level playing field where incentives for regulatory arbitrage are minimized if not eliminated.
Read Also: US Regulator Launches Site For Complaints Of FTX Victims
“If you wish to serve consumers through payment systems, through deposit or loan products, or through asset management and trade facilitation, you must be subject to the same requirements as all other participants,” concluded Nichols.
Previously, the US Government had launched a website for alleged scam victims of cryptocurrency exchange FTX founder Sam Bankman-Fried to communicate with law enforcement.
American Banking Association Says Crypto Companies Must Be Regulated Like Banks. In an order late Friday, January 6, 2023, US District Judge Lewis Kaplan in Manhattan authorized federal prosecutors to use the website, and did not need to contact individual victims.
“FTX may owe money to more than 1 million people, making it impractical for authorities to contact individual victims,” prosecutors said, quoted from Channel News Asia, Monday (9/1/2023).
Federal law requires prosecutors to contact potential victims of crimes to inform them of their rights, including the right to obtain restitution, be heard in court and be protected from the accused.
“If you believe you may have been the victim of fraud by Samuel Bankman-Fried, alias SBF, please contact the victim coordinator or witness at the United States Attorney’s office,” the website reads. The website has been active on Friday afternoon.
Bankman-Fried, 30, has pleaded not guilty to eight counts of wire fraud and conspiracy over the November FTX collapse. Prosecutors say he stole billions from FTX customer deposits to pay debts to his hedge fund, Alameda Research, and lied to investors about FTX’s financial condition.
The former billionaire admits to his risk management deficiencies, but says he does not hold himself criminally responsible.
Previously, the US Federal Trade Commission (FTC) investigated allegations of fraudulent behavior by crypto companies. Currently the FTC is opening investigations into many crypto companies for alleged violations.
A spokesman for the US Federal Trade Commission (FTC) declined to name the companies or say exactly what actions prompted the investigation.
“While we cannot comment on current events in the crypto market or details of ongoing investigations, we are currently investigating several companies for possible digital asset-related misconduct,” the spokesperson said in a statement. /1/2023).
Read Also: PayPal CEO David Marcus Predicts Crypto Winter Lasts Until 2024
Bloomberg said in a report the investigation was related to misleading advertising but an FTC spokesperson declined to confirm this.
The explosion of the FTX collapse case sent a new shock wave through the cryptocurrency industry, which pushed the value of bitcoin sharply lower for 2022.
American Banking Association Says Crypto Companies Must Be Regulated Like Banks. The US Securities and Exchange Commission (SEC), which also has regulations requiring disclosure from individuals promoting securities, has cracked down on celebrity endorsements, including reality TV star Kim Kardashian for allegedly promoting crypto tokens on her Instagram account without proper disclosure.
The FTC also pursues and takes action against companies that present themselves as cryptocurrency-related companies but are suspected of being nothing more than frauds.
