European Central Bank Governor Proposes Strengthening Oversight of Cryptocurrency Industry

Proposal to Strengthen Supervision of Virtual Currencies

European Central Bank (ECB) Supervisory Board member Elizabeth McCall published a blog post today, calling for better oversight of cryptocurrency sector activity.

McCall cited the bankruptcies of 3 Arrows Capital (3AC) and FTX last year as background, as well as the closure of banks that served the cryptocurrency industry, including Silvergate Bank and Signature Bank.

Although the connection between the cryptocurrency sector and traditional financial institutions is still very small, there is a high degree of interconnectedness between companies within the cryptocurrency ecosystem. is expanding so rapidly that it could affect global financial stability in the future.

Current status and future issues

McCall also said that cryptocurrency regulation has evolved significantly in recent years. Specifically, in December 2010, the Bank for International Settlements (BIS) and the Basel Committee on Banking Supervision (BCBS) announced a policy to limit the amount of cryptocurrencies that banks can hold to 2% of their reserves.

As a next step, it will be important for the European Union and other Basel-controlled countries and territories to incorporate these standards into law by 1 January 2025.

Furthermore, he mentioned MiCA, which is currently being enacted, as a comprehensive cryptocurrency regulation by Europe. MiCA stands for “Market in Crypto Assets” and is a comprehensive cryptocurrency regulation proposal announced by the EU in September 2020. It focuses on regulating stablecoins and other digital asset transactions, including licensing and consumer protection requirements.

According to McCall, MiCA stipulates governance principles such as separate management of customer funds and requirements for external audits. I pointed out that it was included.

On the other hand, he continues that MiCA has some parts that need to be compensated for. For example, MiCA regulates cryptocurrency platforms with more than 13 million users as significant cryptocurrency providers, while FTX did not exceed this threshold.

Also, Binance, the world’s largest cryptocurrency exchange, which is said to have about 29 million active users, does not reach the threshold when looking only at European users.

Therefore, Mr. McCall considers considering not only the number of users but also the transaction volume and the amount of assets under custody of the custody business operator, and believes that these figures should be measured at the level of an entire corporate group. .

In the case of large-scale and complexly structured cryptocurrency companies, he said, “they often carry out activities equivalent to those of investment companies in traditional finance.” He argued that there is a need for an appropriate licensing system that addresses the risks inherent in such activities.

For example, FTX did not have comprehensive oversight of its entire group of vertically integrated businesses and its global activities across multiple regions of the world.

He added that even companies like Binance, which claim to have no headquarters, need to be able to be supervised. In this regard, no jurisdiction should allow a cryptocurrency company to operate without disclosing its legal status or who is responsible for its business.

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Binance’s regulatory compliance

As for Binance, especially in 2021, the Japanese Financial Services Agency (FSA), as well as various regional authorities such as the Financial Conduct Authority (FCA) and the Hong Kong Securities and Exchange Commission (SFC), will provide services to residents without registration. I was warned that I was

In response to this, corporations in each region are currently in the process of obtaining licenses in order to comply with regulations. It is said that the company is considering where to place its headquarters.

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