Single set of rules urged for virtual assets

Regulators can better protect investors with disclosure mandate, exchange chief says

FTX, the cryptocurrency exchange backed by investors including Sequoia, BlackRock and Temasek, is calling on regulators to come up with a single rule book to oversee virtual assets.

Splitting oversight across multiple watchdogs based on whether a product is a “security” or not would not protect investors, the exchange’s chief executive warned.

Sam Bankman-Fried, who co-founded the three-year-old exchange in Hong Kong but moved to the Bahamas last year, said regulators should focus on building a single framework that mandated full disclosure in the global cryptocurrency market, now valued at US$2 trillion.

This would enable investors to make informed decisions, and free the industry from a barrage of compliance requirements that could stifle innovation.

Rather than arguing about whether a product was a security or not, “let’s have a framework that addresses the important things such as disclosure, and how to prevent fraud”, said Bankman-Fried on the second day of the annual Asian Financial Forum organised by the Hong Kong government. The event is being hosted online this year.

“We have different regulatory frameworks for all other asset classes, the same thing [should be built] for crypto,” said the digital tycoon, whose net worth is estimated at US$26.5 billion.

While he did not name any specific regulators, his comment goes against a common approach taken by watchdogs in both Hong Kong and the US.

Under the current “opt-in” regulatory framework, the city’s Securities and Futures Commission stipulates that crypto exchanges must offer at least one security token – a product structured like a traditional security – to be able to qualify for a licence.

In the US, a similar approach was taken by Gary Gensler, the head of the Securities and Exchange Commission (SEC). Last August, he said many digital tokens were “securities”, and should therefore be under the jurisdiction of the SEC.

But he has been less forthcoming on his position recently, declining to say whether he considered ether, the second-largest cryptocurrency after bitcoin, to be a “security” in a recent CNBC interview.

Some crypto assets had properties that made them more akin to a “security”, while others did not, Bankman-Fried said. The boundary was blurry and such complexity should not steal the focus of regulators, he added.