Hsu: Crypto industry resisting consolidated supervision

Michael Hsu

Pushback from the crypto industry is delaying the consolidated supervision of crypto assets, Acting Comptroller of the Currency Michael Hsu said Feb. 22 during a speech before the Financial Stability Board’s Crypto Working Group.

Last July, the international standards-setting organization called for crypto-asset issuers and service providers to be regulated proportionally to the risks they pose to financial stability. FSB called for greater coordination between domestic and international authorities to share information and consult with each other. The agency wants crypto issuers and service providers to release “a comprehensive governance framework” with lines of responsibility for their activities. 

“The FSB’s global regulatory framework for crypto-asset activities lays out recommendations to promote comprehensive and consistent regulatory and supervisory approaches,” Hsu said. “But implementation has been challenging, and no real progress has been made on consolidated supervision.

“This is, in part, because the crypto industry continues to resist what it sees as improper or over-burdensome regulation and oversight, while jurisdictions continue to compete for crypto business. The risk with such competition is that it gives the industry leverage and forces regulators to accommodate and compromise.” 

Hsu compared the series of cryptocurrency platform failures in recent years to the 1991 collapse of Bank of Credit and Commerce International, which has been described as the largest bank fraud in history. The bank, which failed in July 1991, had $23 billion in assets and 380 offices in more than 72 countries, including four banks in the United States. An estimated $12 billion in depositors’ funds were lost in the failure. 

Hsu said there wasn’t a lead regulator to oversee the bank’s complex web of affiliates, subsidiaries and branches. BCCI’s parent holding company was reportedly not subject to supervision in the jurisdiction in which it was chartered, which Hsu said enabled money laundering and hid the bank’s true financial condition for years. The former chief executive of BCCI, Swaleh Naqvi, was sentenced to more than eight years in prison in 1994 and ordered to pay $255.4 million in restitution. 

Perhaps the most widely known crypto platform failure in recent years was FTX in November 2022. At the time of its collapse, FTX was one of the largest crypto exchanges worldwide. Disgraced FTX Founder Sam Bankman-Fried is believed to have committed one of the largest financial frauds in U.S. history by moving money from FTX to his crypto-centered affiliated hedge fund, Alameda Research, without the permission of his customers. 

Nearly $9 billion in customer funds was estimated to have been lost in the collapse.  

Bankman-Fried was convicted last November of defrauding customers of both FTX and Alameda Research. He faces decades in prison. Several former executives have pleaded guilty to defrauding FTX customers and other charges and identified Bankman-Fried as having directed them to commit fraud.