Crypto Should Be Regulated Under Existing Law, Says Former FDIC Chief

The collapse of cryptocurrency exchange FTX shows U.S. regulators need to combine forces and use existing powers to protect investors rather than wait for new laws, urged Sheila Bair, who helped lead the regulatory response to the 2008 financial crisis.

“Regulators need to swallow hard and get an agreement, then start implementing, using the powers they currently have,” Bayerformer head of the Federal Deposit Insurance Corporation, told the Financial Times.

“Set a framework, announce it publicly, implement it through rule changes and policy announcements. But keep going because more and more people are getting hurt.

Federal regulation of cryptocurrency-related products and commerce has been blocked by claims that it falls within the jurisdictions of the Securities and Exchange Commission, Commodity Futures Trading Commission, and banking regulators. When senators this week asked US regulators who was overseeing FTX, which was once worth $32 billion, there was an awkward pause.

There is also a heated debate over whether agencies should produce crypto-focused regulation, with some lawmakers and industry figures calling for more guidance while market regulators say existing laws are clear enough.

Most Americans attracted to bitcoin and other digital tokens have traded through entities headquartered outside the United States, including FTX. This company filed for bankruptcy last week, throwing the digital asset market into crisis. The group’s new chief executive said in a court filing that FTX displayed “a complete failure of corporate controlsand was subject to “flawed overseas regulatory oversight.”

“It doesn’t surprise me and it saddens me,” Bair said. “It was a mistake when the President’s task force [on digital assets] says we need legislation and we throw a hot potato back to Congress.

Some opponents of cryptocurrency regulation worry that government oversight is giving digital assets undeserved credibility. Bair said she strongly disagrees, based on her experience with consumer loans. “I really don’t like payday loans, but . . . I don’t think it validates payday loans by regulating them. They try to prevent people from getting hurt.

Bair said she does not expect the crypto price crash to cause broader financial instability. “To date, most cryptos have never really had real-world applications, so the economy doesn’t rely on it the way we rely on our regulated financial system.”

But she worried that FTX’s problems would spill over and affect fintechs trying to exploit the same type of distributed ledger technology. She is an external board member of Paxos, which offers cryptocurrency brokerage and settlement services and is regulated by New York State.

“I don’t want to throw the baby out with the bathwater. Hopefully this will actually reallocate capital from speculation to companies that are really trying to use this technology in a meaningful way for something of value.

“A regulatory imprimatur for them would absolutely help with that. Stop those other guys.