Binance, Crypto Firms Need To Be ‘Supervisable,’ Warns ECB Board Member

ECB supervisory board member warns crypto asset markets could hit a point where they are a “threat to global financial stability” if international regulation isn’t enforced


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What kind of framework, if any, should exist for crypto assets? That’s a question posed by Elizabeth McCaul, a supervisory board member of the European Central Bank, in a blog post aimed at taking a critical eye to the crypto world as we currently know it. 

McCaul believes that regulation within crypto would help to maintain financial stability, though she pointed out that Markets in Crypto-Assets (MiCA) is expected to provide insight into the crypto industry and allow more oversight into the activities of crypto-based firms. 

She is not the only member of an ECB board to have expressed concerns around regulation, either. Back in January, ECB executive board member Fabio Panetta wrote, “We cannot afford to leave cryptos unregulated. We need to build guardrails that address regulatory gaps and arbitrage and tackle the significant social costs of cryptos head-on.”

McCaul noted, “Although the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) have acknowledged the need for a global regulatory and supervisory framework for crypto-assets, I am afraid that this project is still very much in its infancy.”

She made the case that additional frameworks could help boost the effectiveness of MiCA and Basel. Additionally, she observed that the failure of FTX exposed a “contagion” effect in the crypto ecosystem.

“The nature and scale of crypto-asset markets are rapidly evolving and could reach a point where they represent a threat to global financial stability.

McCaul argued that the lack of borders and jurisdictions make a tough regulation case, and will require the international community to come together to create the framework. 

“Even firms that claim to have no headquarters, such as Binance, need to be ‘supervisable,’” she wrote. 

From FTX’s handling of assets to using software to cover up the misuse of customer funds, there’s a laundry list of what allegedly went wrong at FTX. But it’s the lack of consolidated oversight due to the company’s global scale that seems to have concerned McCaul.

“In my view, large players like FTX or Binance need a consolidated approach, even if this requires adjustments to existing legislation. Conflicts of interest must be identified across the group and even beyond, taking into account affiliated entities,” McCaul argued.

European banks have shown themselves to be cautious about engaging in crypto-related activities, due in part to the uncertainty and infancy around regulation in the space — a view that McCaul said she supports until authorities implement further regulation.

“Banks need to define their risk appetite limits before engaging in any crypto-related operations. In so doing, they should assess the adequacy of their risk management arrangements to cope with the challenges of the crypto market. They should define a clear business strategy – to be approved by the management body – and implemented by senior management,” McCaul wrote.

But while European countries and the US have both been researching solutions separately, no international framework for regulation currently exists.

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