EU’s MiCA Crypto Law Would Have Stopped FTX Malpractice, Officials Say
Upcoming European Union rules known as the Markets in Crypto Assets regulation (MiCA) would have stopped FTX-style mismanagement, officials said on Wednesday – despite lawmaker skepticism over whether the new rules are effective.
The crypto exchange’s collapse has led to calls to toughen or bring forward the rules, which require crypto companies to register with the authorities and meet governance standards common in other kinds of regulated financial firms.
But the European Commission, which proposes EU legislation, said that the rules – which still won’t take effect for a few years – would have helped.
“Under the MiCA regime, no company providing crypto assets in the EU would have been allowed to be organized, or perhaps I should say disorganized, in the way FTX reportedly was,” Alexandra Jour-Schroeder, Deputy Director General at the European Commission’s financial services arm told lawmakers at a specially convened hearing on Wednesday.
Failings at FTX such as inadequate record-keeping and the misuse of client assets were “very serious” and “potentially even fraud,” Jour-Schroeder told lawmakers on the European Parliament’s economic and Monetary Affairs Committee in Brussels, but added that she “do[es] not see them as failures of blockchain tech or even crypto assets per se.”
“With MiCA we will take a step change forward compared to the status quo,” she said. The law, agreed in principle due to get its final vote from lawmakers in February, was “urgent,” but she said she didn’t expect a renegotiation to shorten the 12-18 month period currently envisaged for the industry to prepare for its implementation.
FTX unraveled over recent weeks following CoinDesk revelations of a blurring of lines with its supposedly separate trading arm, Alameda Research, leaving investors reliant on bankruptcy proceedings to see their funds again.
Around 10% of its customers were in the EU, and one subsidiary, FTX Europe Ltd., was until early November supervised by the Cypriot financial regulator.
Lawmakers weren’t entirely convinced by Jour-Schroder’s assurances, seeing FTX as a symptom of wider issues.
“In the world of crypto there are constant problems,” said left-wing French lawmaker Aurore Lalucq. “Every day there is market manipulation and people who are embezzling.”
“I’d like the commission to wake up a bit,” Lalucq added. “Can we really hold our heads up high and say that Binance, for example, which is registered in Europe… couldn’t possibly go bankrupt?”
Ernest Urtasun, a member of the European Parliament’s Green grouping, said he has "serious doubts that MiCA would have prevented” the scandal. Urtasun called for short-term measures to address risks or block risky crypto products in the short term. “We need to have a means of acting very fast,” he added.
Officials from the European Securities and Markets Authority, ESMA, appeared to agree that FTX isn’t a lone case of malpractice among crypto companies – but stressed that new EU laws were a start.
“I wouldn’t comment on individual cases, but generally speaking the [crypto] industry has many signs of weaknesses across all key functions,” said Steffen Kern, head of ESMA’s risk analysis and economics department, citing poor management and failures to segregate client funds. “MiCA, had it been in place, would have been extremely helpful.”
Stefan Berger, the center-right lawmaker who was an architect of MiCA, defended his plans, and said the blame should lie instead with the company’s prominent chief executive.
“FTX was the Lehman Brothers for this community,” Berger said, but added that the responsibility lay with “the behavior and hubris of an individual, Sam Bankman-Fried,” rather than blockchain technology.
“MiCA has to be passed as quickly as possible,” Berger said, and “come into force so that in Europe we have rules which rule this type of situation out from the word go.”
Read more: EU Seals Text of Landmark Crypto Law MiCA, Fund Transfer Rules