Ex-FDIC Head: People ‘Getting Hurt’ by Lack of Crypto Rules

The former head of the Federal Deposit Insurance Corporation (FDIC) has joined a chorus of voices calling for the regulation of cryptocurrency in the wake of FTX’s failure.

Speaking to the Financial Times (FT) on Sunday (Nov. 20), Sheila Bair said that rather than waiting for new laws, regulators need to join forces and use existing laws to protect investors.

“The regulators need to swallow hard and get an agreement and then start implementing, using the authorities they have now,” said Bair. “Set a framework, publicly announce it, implement it through rule changes and policy announcements. But get on with it, because more and more people are getting hurt.”

Calls for crypto regulations have grown louder in recent weeks following the collapse of the cryptocurrency exchange FTX, which filed for bankruptcy on Nov. 11, kicking off a digital asset market crisis. In a recent court filing, the company’s new CEO said FTX demonstrated “a complete failure of corporate controls” helped along by “faulty regulatory oversight abroad.”

“It doesn’t surprise me and it saddens me,” Bair told the FT. “It was a mistake when the president’s working group [on digital assets] said we need legislation and we’re throwing a hot potato back to Congress.”

Among the unanswered questions in the digital asset regulation debate: Will crypto and stablecoins get their own set of rules?

Alternatively, they could become part of existing banking and money transmission regulations, perhaps updated for the peculiarities of digital assets, Amias Gerety, a partner at FinTech investment firm QED Investors, told PYMNTS last month.

“If you create a regulatory silo over here and then another regulatory silo over there, of course there’s every intention to say, same financial instrument, same risk, same rules,” he said in an interview with PYMNTS’ Karen Webster. “But whenever you write the rules separately, you can’t guarantee that that’s what you’re going to get.”

Gerety said his view is essentially a Gordian knot strategy. Pointing to the Electronic Funds Transfer Act, he said, as “the rise of electronic payments came about, there was a move, basically successful, to pass laws that say no matter how you move the money, we need these consumer protections.”

Stablecoins and traditional payment systems are “less different than people think, so we should use regulatory regimes that already exist. You want to be a stablecoin, go register as a money market fund. Or you want to be a stablecoin, go register as a bank.”