Zoe Wyatt comments on the UK regulatory response to the FTX collapse in Law360
Partner and Head of Crypto, Zoe Wyatt, comments on the bad practices brought to light by the FTX collapse, along with the UK’s regulatory options in its aftermath, in Law360.
Zoe’s comments were published in Law360, 14 November 2022.
“The FCA has been struggling with operational issues, such as loss of staff with sector expertise to industry, and has thus been unable to register all the firms that have applied to be regulated in the UK, forcing many firms to seek registration in other jurisdictions. As a result, FCA loses all visibility and control over consumer protection. If the UK could provide timely registration for companies, this would be welcomed by the cryptoasset sector.
“There is also a need for cryptoasset firms to better explain how they operate to their users. Some firms will use their customers’ cryptoasset deposits to generate a return, which is then passed on. However, as with banks, this can lead to insufficient liquidity for customer withdrawals which, in turn, leads to more panic. The recent events have brought to light bad practices, with some exchanges now publishing a ‘proof of reserve’ with a view to demonstrating their level of liquidity. Although this is unlikely to be sufficiently transparent without also highlighting how quickly such reserves can be liquidated and any associated risks. However, the need for effective regulation has not been lost on the crypto sector. We now need to have an adult discussion as to what a flexible regulatory framework that also provides consumer protection looks like.”