The UK’s financial watchdog said today it will ensure crypto firms have “sterile corridors” between the different products and services they offer, as it assesses the wreckage of collapsed exchange FTX and prepares to bring the sector into its remit.
Speaking to MPs at a select committee hearing today, Financial Conduct Authority officials said the regulator had taken ”learnings” from the collapse of Sam Bankman-Fried’s empire and would ensure that crypto products and services do not cross-contaminate each other when it has powers to regulate the sector.
The implosion of FTX and its sister firm Alameda’s collapse has underscored the danger of funds and services bleeding into each other on crypto platforms, as well as the interwoven nature of Bankman-Fried’s empire.
The FCA’s director of payments and digital assets, Matthew Long, said the FCA will look to stamp out similar practice when it regulates the sector.
“If you take a step back from FTX, what you’ve got is [a firm] minting a coin and then issuing it, […] then you’ve got trading of it in the same place, you’ve then got wholesale market activity, and you’ve got custody,” Long told MPs.
“In our view, [that is] extremely dangerous because you can have an interaction between each of those things.”
He added that in other “regulated areas” there would be separate entities that would have “sterile corridors so they couldn’t effectively influence each other”.
“There is a piece here where minting your own coin and then being able to offer it and trade it in the same place, and then have a cyclical process, is a risk for us, both in the UK and internationally,” he added.
The FCA does not currently have oversight of cryptocurrency businesses but is due to gain greater powers as a result of an amendment to the Financial Services and Markets Bill making its way through parliament.
Ministers have finalised plans to regulate the sector and will allow regulators to police how firms operate and advertise their products, The Financial Times reported.