The Bafin boss finds some processes in the crypto business scandalous. “There were providers who were obviously amateurish and infantile.”
(Photo: dpa)
Frankfurt The German financial regulator Bafin is calling for comprehensive regulation of the sector following the recent upheavals in the crypto market. “Perhaps this market collapse came at the right time,” said Bafin boss Mark Branson on Tuesday evening at the International Club of Frankfurt Business Journalists (ICFW). “Now we have to learn the lessons from this.”
FTX, once the third largest crypto exchange in the world, recently filed for bankruptcy. FTX founder Sam Bankman-Fried was arrested Monday on suspicion of fraud and faces jail until his February 8 trial next year. The responsible judge in the Bahamas refused to release him on bail. From their point of view, the danger that Bankman-Fried will then flee is too great.
The US Department of Justice has filed a criminal lawsuit against the FTX founder and is demanding that the Bahamas extradite him. Bankman-Fried has admitted mistakes but denied responsibility for criminal activity.
Branson made it clear that he finds the actions of some players in the crypto sector irresponsible. “There were providers who were obviously amateurish and infantile.” Since the size of the crypto business is still manageable and there are no close ties with the traditional financial world, the recent turmoil does not pose a risk to financial market stability.
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However, Branson sees a risk that if the crypto industry is simply allowed to continue as it has been, this could be different in future slumps. “It may well be that after this crypto winter there will be a crypto spring,” said the Bafin boss. He thinks it is very likely that there will then be “much more interdependence with the traditional financial business”.
Branson: “Regulation is always a bit behind the curve”
Branson is therefore committed to global crypto rules. In his view, in addition to maintaining financial stability, the fight against money laundering and consumer protection must also be guaranteed. The cryptocurrency regulatory framework recently adopted in the EU is a step in the right direction, but it doesn’t go far enough, Branson said.
>> Read here: Sam Bankman-Fried blames himself
Representatives of the European Parliament and the member states had agreed on the Mica directive (short for “Markets in Crypto Assets”) in the summer. The new law aims to protect investors and prevent the misuse of cryptocurrencies. However, the guideline will probably only apply from 2024 – and then parts of it may already be outdated.
“You’re always a bit behind the curve with regulation,” admits Branson. For this very reason, however, he finds it important to start work on new rules promptly, which he believes must encompass the entire ecosystem. “Regulation must be extended to all activities.” According to the Bafin boss, this must also include “risk-oriented capital and liquidity regulations if you have risks similar to those in the banking business.”
Recently, numerous other financial market supervisors had spoken out in favor of stricter regulation of the crypto sector. The Financial Stability Board FSB intends to present a timeline in the coming year that will determine when the first proposals for global crypto regulation will be made. The FSB monitors the threats to the global financial system on behalf of the G20 countries.
Perhaps this market collapse has come at the right time. Bafin chief Mark Branson
Recent events have shown that there are risks in the crypto sector that urgently need to be addressed, long-time FSB Secretary General Dietrich Domanski recently told the Financial Times. The aim is to adopt a framework under which crypto providers “have to adhere to the same standards as banks when making the same offers as banks”.
Bafin rejects criticism of slow licensing
In Germany, numerous fintechs as well as established financial institutions have applied for licenses to trade and store cryptocurrencies. Some complain that it takes a long time for the Bafin to issue the relevant licenses. The firms argue that the collapse of FTX shows that there is a need for regulated and trusted crypto providers.
Branson also believes that the crypto sector tends to become more stable when properly regulated and tightly overseen. Before the Bafin grants licenses, however, they check carefully whether the control systems are appropriate given the risks that exist in this business. “The fact that it takes a while to get a crypto custodial license from us isn’t necessarily a bad thing.”
The example of Bitpanda shows that the Bafin gives the green light for new crypto offerings even in difficult times after a detailed examination. At the end of November, the Viennese crypto trading platform received a license for custody and proprietary trading of cryptocurrencies.
More: FTX bankruptcy trustee Ray testifies before Congress: “No way” he couldn’t have known