After the FTX meltdown, several U.S. authorities are likely to take a closer look at crypto exchanges, underscoring the risks inherent to relying on intermediaries to handle core functions.
Regulators Take Action On FTX Crisis
As reported by the Wall Street Journal, the U.S. Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) are probing the cryptocurrency exchange FTX. The DOJ prosecutes criminal violations, such as fraud, while the SEC focuses on securities law violations. Furthermore, the regulators also examine Coinbase Global and Binance, following the turbulence across the cryptocurrency market.
The SEC has been looking into FTX.US’s trading of dozens of crypto tokens in the past months. Agency officials believe FTX’s lending product, as well as some of the firm’s other assets, might constitute securities that should have been registered with the SEC before being sold to investors. If that is the case, then FTX’s handling of customer assets might also violate laws governing U.S. exchanges.
In addition, the SEC and the Commodity Futures Trading Commission (CFTC) are investigating whether FTX mismanaged customer funds. Reportedly, they are also looking into the firm’s relationships with other parts of Bankman-Fried’s crypto empire such as Alameda Research, the trading firm.
SEC Chair Gary Gensler Stands Up For The Need For Improved Protections In Crypto Space
In light of the FTX fallout, SEC Chair Gary Gensler said in an interview with CNBC on Thursday that crypto investors need better protections because the space is “significantly non-compliant” despite clear regulations. He stated harmful circumstances such as investors’ money being mixed together, non-disclosure agreements, leverage, and insider trading within companies. Highlighting that investors around the globe are getting hurt while summoning cooperation from crypto companies.
Also during Healthy Markets Association on Wednesday, the SEC Chair associated the situation with a Jenga tower that has been built, and each block removed caused the entire structure to sway. He expressed that he would not view recent events as separate from what occurred in the past eight months referring to Terra Luna’s collapse. Gary Gensler emphasized to comply with U.S. law, crypto platforms should segregate their broker-like activities from their exchange-like functions.