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1. News
2. Technology
EUROPE: FTX-STYLE CRYPTO CRASH WON’T HAPPEN HERE
Brussels thinks it’s cracked the code on crypto regulation.
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FTX was the world's third-largest exchange to buy and trade Bitcoin until CEO
Sam Bankman-Fried declared bankruptcy earlier this month | Craig Barritt/Getty
Images for CARE For Special Children
November 25, 2022 1:16 pm CET
By Gian Volpicelli
The cryptocurrency world is reeling after the collapse of crypto exchange FTX —
but EU policymakers are patting themselves on the back.
FTX was the world's third-largest exchange where people could buy and trade
Bitcoin and other cryptocurrencies, and a key node of the global financial
network underpinning the crypto industry. It declared bankruptcy this month,
losing at least $1 billion in customer funds, after leaked documents raised
questions about its solvency.
In Brussels, EU lawmakers are claiming the bloc's upcoming crypto rulebook,
Markets in Crypto-assets (MiCA), would prevent future FTX-level scandals.
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MiCA should “be taken as a global model” for crypto regulation, said Stefan
Berger, the center-right MEP who shepherded MiCA through Parliament, adding it
"addresses exactly this problem" that caused FTX to topple. “[It] provides
internal control mechanisms, makes evidence of good management mandatory, and
provides segregation of assets of clients and funds,” Berger said.
Europe is among the first regions in the world to create a wide-ranging law for
crypto assets and providers of crypto services. The EU sees itself as a leader
in regulating new technologies, often referencing its General Data Protection
Regulation and draft artificial intelligence law as examples.
It's now doing the same for crypto: “MiCA will protect consumers, market
integrity and financial stability. It will bring crypto-asset exchanges, wallet
providers or issuers of crypto-assets under EU supervision,” a European
Commission spokesperson said about FTX's crash.
The regulation is expected to only enter into force in mid-2023 at the earliest.
But it is already having a deterring effect, analysts claim. “While MiCA is not
in force yet, it foreshadows what will come, and makes criminals stay away,”
said Philipp Sandner, head of the Blockchain Center at the Frankfurt School of
Finance and Management.
For now, the European Union seems only limitedly touched by FTX's meltdown.
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The European Central Bank's Vice President Luis de Guindos told reporters
earlier this month that the fall of FTX was “not a surprise” but said the
exchange’s demise had not reverberated in any significant way through the
broader financial markets.
The crypto exchange's customers were scattered worldwide but most users were
likely in non-EU countries, according to crypto data aggregator CoinGecko. The
firm singled out South Korea, Singapore and Japan as the top three countries
sending visitors to FTX’s website. Only Germany (in the fifth spot), Italy, the
Netherlands and France featured in CoinGecko’s 30-country list.
“European citizens were not so affected — not so many people had registered with
FTX,” said Sandner, at the Frankfurt School of Finance and Management. “I know
hundreds of people in the crypto space, and I only know two individuals who had
been FTX customers — and they got their money out.”
ECB Vice President Luis de Guindos signaled that FTX's downfall had had limited
impact on the financial markets | Pool photo by Carlos Costa/AFP via Getty
Images
Sandner said that national regulations in Germany and France require companies
holding customers’ crypto to register with financial authorities and prevent
unregistered actors from advertising in the country. He said it staved off FTX
establishing a foothold in major EU countries. Similar rules also shielded
Switzerland and the United Kingdom from the turmoil, he added.
Some EU countries, like Cyprus, did get caught up in the crash. On September 15,
FTX announced it obtained a license from the Cyprus' Securities and Exchange
Commission (CySEC), which cleared the company to provide EU citizens with
investment services in crypto-backed derivatives, although FTX was not allowed
to conduct cryptocurrency trading. CySEC suspended FTX’s licence on November 9.
MiCA, even when it is implemented, might already be in need of an update in
light of the disaster, some lawmakers warned. The Parliament’s economic affairs
committee is holding a hearing on the FTX meltdown this Wednesday.
“[There is] urgent need to address additional challenges that are not covered in
MiCA," said Ernest Urtasun, a Spanish Green MEP who also worked on MiCA. He
singled out crypto lending, the connection between crypto organizations and
traditional finance, and the potentially growing risks of DeFI, or decentralized
finance, which is run by organizations without clear structure or leadership and
through automated blockchain software.
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Related Tags
Blockchain Digital currencies Finance and banking Financial stability Investment
Markets Parliament Regulation Risk and compliance
Related Countries
Cyprus France Germany United States
Related People
Ernest Urtasun Luis de Guindos Stefan Berger
Related Organizations
European Central Bank European Commission
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