# FTX collapse shows urgent need to finalise EU crypto rules, says European Commission
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-30
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: EU Urged to Finalise MiCA Rules Amid FTX Collapse
Meta Description: Senior EU official highlights urgent need for MiCA rules amidst FTX collapse, as regulators strive to tackle questionable crypto practices and protect
URL: https://financedigest.com/ftx-collapse-shows-urgent-need-to-finalise-eu-crypto-rules-says-european-commissionhtml

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By Huw Jones

LONDON (Reuters) -The “questionable practices” at now collapsed crypto exchange FTX would not have been allowed to happen under European Union rules that need to be finalised urgently, a senior European Commission official said on Wednesday.

The crash in bitcoin led to a “crypto winter”, which saw the collapse of crypto exchange FTX, and earlier this week cryptocurrency lender BlockFi filed for bankruptcy protection.

The [European Union has reached agreement on groundbreaking markets](https://www.financedigest.com/explainer-why-european-money-market-funds-inflows-are-lagging-behind-the-u-s-torrent.html "Explainer-Why European money market funds inflows are lagging behind the U.S. torrent?") in cryptoassets rules (MiCA) for licensing and supervision, expected to come into effect in 2024 and putting the bloc at the forefront of regulating a sector which has shrunk dramatically.

But Alexandra Jour-Schroeder, deputy director general at the Commission’s [financial services](https://www.financedigest.com/devops-the-secret-tool-thats-transforming-financial-services.html "DevOps: The Secret Tool that’s Transforming Financial Services") unit, said it was a matter of urgency to complete approval of MiCA with a final vote in the European Parliament.

There were questionable practices at FTX where there was no proper record [keeping or separation of customer and company](https://www.financedigest.com/in-listening-mode-new-bayer-ceo-keeps-open-mind-on-company-split.html "In listening mode, new Bayer CEO keeps ‘open mind’ on company split") accounts, she said, adding that about 10% of the company’s customers were in the bloc.

“All these failures are very serious. We don’t see them as failures of [blockchain or crypto assets](https://www.financedigest.com/rambus-unveils-vaultify-trade-for-secure-transaction-and-storage-of-crypto-assets-on-blockchain.html "Rambus Unveils Vaultify Trade for Secure Transaction and Storage of Crypto Assets on Blockchain") per se,” Jour-Schroeder told a European Parliament hearing.

Under the MiCA regime, no [companies providing](https://www.financedigest.com/traceto-io-positions-itself-to-be-the-worlds-leading-kyc-provider-to-blockchain-companies.html "Traceto.io positions itself to be the world’s leading KYC provider to blockchain companies") cryptoassets in the EU would have been allowed to be organised, perhaps it’s better to say disorganised, in the way FTX reportedly was.

[European Central Bank](https://www.financedigest.com/ecbs-villeroy-rate-hike-signals-strong-confidence-in-european-banks.html "ECB’s Villeroy: rate hike signals strong confidence in European banks") President Christine Lagarde told the parliament earlier this week that MiCA is one step in the right direction, but there will “have to be a MiCA 2” with a broader scope.

GET MICA DONE

Jour-Schroeder cautioned against reopening negotiations on MiCA, saying the priority is to quickly approve the original rules which provide [important protections to investors](https://www.financedigest.com/despite-the-headwinds-investors-have-important-reasons-to-be-cheerful.html "DESPITE THE HEADWINDS, INVESTORS HAVE IMPORTANT REASONS TO BE CHEERFUL") and the financial system.

“It has to be implemented. That does of course not mean the commission will stop thinking after MiCA 1,” she said, adding the EU executive would look at [decentralised finance](https://www.financedigest.com/g20-watchdog-homes-in-on-decentralised-finance-after-ftx-crash.html "G20 watchdog homes in on decentralised finance after FTX crash"), and crypto lending.

“Let’s not do the second step before the first,” she said. This MiCA will make a step [change forward compared with the status quo.”](https://www.financedigest.com/pelosi-praises-taiwan-says-asian-trip-wasnt-to-change-status-quo.html "Pelosi praises Taiwan, says Asian trip wasn’t to change status quo")

FTX had a licence to operate in the EU from the Cyprus securities regulator for [traditional](https://www.financedigest.com/traditional-security-defences-may-prove-inadequate-for-effective-gdpr-strategies-warns-aruba.html "Traditional Security Defences May Prove Inadequate for Effective GDPR Strategies, Warns Aruba") securities but not cryptoassets, which was suspended when the company’s problems began to unfold.

Steffen Kern, head of risk analysis at the EU’s European Securities and Markets Authority (ESMA), said there is evidence of market abuse, poor governance and lack of controls in crypto markets, but there is no significant risk of spillovers into the wider [financial sector](https://www.financedigest.com/how-can-the-financial-sector-safely-use-the-iot.html "How can the financial sector safely use the IoT?") from FTX specifically.

“There are problems in this industry. The regulatory framework, once it [comes into force](https://www.financedigest.com/the-glorious-twelfth-what-underwriters-should-be-doing-as-the-insurance-act-comes-into-force.html "The Glorious Twelfth: What Underwriters Should Be Doing As the Insurance Act Comes Into Force"), will be extremely important in tackling these issues,” Kern said.

Asked if ESMA could in the meantime use its powers to ban crypto products, Kern said detailed [data is needed](https://www.financedigest.com/leaders-recognise-the-importance-of-green-transport-at-cop27-but-we-need-data.html "Leaders recognise the importance of green transport at COP27, but we need data") to justify intervention, but figures are limited for an offshore market, with data from companies unreliable.

Enforcing such a [product intervention](https://www.financedigest.com/innovation-at-periodic-intervals-to-upscale-the-effervescent-products-market.html "Innovation at periodic intervals to upscale the Effervescent Products Market") would probably be a particularly difficult thing to do,” Kern said.

(Reporting by Huw Jones; editing by Alexandra Hudson and Elaine Hardcastle)


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