The implosion of the FTX exchange has left observers wondering if tighter regulations could have headed off the eventual collapse of Sam Bankman- Fried's empire, which may leave up to 1 million of its creditor exposed to losses.
Washington has a responsibility to shore up oversight in order to protect investors, according to legal experts. Bankman-Fried and a group of celebrity FTX endorsers were allegedly encouraged to invest in a Ponzi scheme. There have been no criminal charges or allegations of criminal wrongdoing related to the breakdown.
Some big questions have arisen about the present and future state of oversight, who is running the show, and whether or not it is possible to adequately regulate the market.
There are some of the largest.
Who is in charge of the regulation of tHe digital currency?
Even though the Biden administration ordered federal agencies to craft a unified approach to regulation, oversight is still fragmented.
Different regulatory schemes that can be enacted, each of them with different consequences, are what the government has as much difficulty understanding as ordinary leaders do.
The SEC considerscryptocurrencies to be a security. The Commodity Futures Trading Commission sees it as a commodity and the Treasury Department calls it a currency.
Software that concealed the misuse of customer funds and a lack of security controls were found by the crew cleaning up the mess at FTX. FTX's new CEO John Ray III oversaw the downfall of Enron.
"If FTX had been a regulated entity under our regulatory umbrella, customer bonds would've been protected, there would've been liquidity reserve requirements in place, and there would've been monitoring and surveilling that is not immediately available," the Commissioner said.
Better Markets, a non-profit, non-partisan advocacy group promoting safety measures for financial markets, says the CFTC failed to regulate or supervise FTX.
There is still a question regarding regulation.
There is something that could have stopped this.
Filliti at The Lawfare Project said that he would start with a cynical answer. The government can't do everything but the markets can. The market itself can blow right through the stopgap measures that are put in place.
According to Christopher LaVigne, head of the US litigations teams at law firm Withersworldwide, financial history is rife with examples of systemic blowups despite regulations. He said that there has been a similar catastrophe every decade in the past.
There are people who will want to take advantage of the capitalist system if there is money in it. It's a game of catch up between regulations and the next evolution of runaway greed.
Better Markets, which traces its roots to the 2008 global financial crisis, pushed back on the idea that more legislation is needed in the wake of FTX's fall
We don't need anything else. Dennis Kelleher, the CEO of Better Markets, told the Washington Post that they needed more money and support to go after the lawless industry. We need elected officials to pay attention to the public interest.
The SEC is thin when it comes to policing capital markets. The SEC and banking regulators need more resources so that they can enforce existing laws and rules.
Is unified regulation ever going to happen?
"Unfortunately, regulation is going to have to come from what now appears to be a divided Congress, but I think they can figure that out," LaVigne said. There has historically been bipartisan support for some regulation.
LaVigne pointed to bipartisan work on the act. The SEC and the CFTC hold digital assets.
We're going to be in the same situation where there are three different agencies trying to regulate the same space if we don't have consensus basis for the regulations.
Having regulatory attachment to his business seems to have some public-facing value. The regulatory status of FTX was seen as a way to bring in new capital from major investors.
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