WASHINGTON — Acting Comptroller of the Currency Michael Hsu warned against crypto firms integrating with the traditional financial system, saying that crypto companies often "disguise" their products as being similar to banking ones.
To that end, he promoted a cautious view of regulating digital assets, and said that bringing crypto into the regulatory perimeter would only help tame crypto's risks depending "on whose terms it is brought in."
"Using the familiar to introduce something novel can downplay or mask the risks involved and establish false expectations," Hsu said. "In time, people get hurt."
While the Office of the Comptroller of the Currency's authority is limited to banks' interactions with crypto on the digital assets regulation front, that still leaves the agency with several important sets of guidance and rulemakings that could have a big impact on crypto firms' ability to scale in the United States. The agency is currently
Hsu, speaking at DC Fintech Week Tuesday, described some behind-the-scenes interactions between crypto companies and banking regulators. He said that in July, a representative from FTX submitted a proposal to the Financial Stability Oversight Council and argued that integrating crypto and the traditional banking sector would enhance financial stability, Hsu said.
"I could not disagree more," Hsu said. "Crypto today is an immature industry based on an immature technology."
Hsu also took issue with crypto firms that are attempting to integrate their products. That includes companies that are trying to get customers to use their digital wallets as well as their platforms for buying and selling crypto; issuing stablecoins; and a number of other activities.
"While commingling these activities may offer convenience for consumers and cost savings for crypto firms, conflicts abound and the riskiest activity threatens the whole bundle," Hsu said. "Consider the recent failures of Three Arrows Capital, Celsius and Voyager Digital. All three engaged in a range of crypto activities, from crypto custody to borrowing and lending to proprietary trading."
One of the most harmful, he said, are "crypto savings accounts," such as those offered by Celsius and Voyager Digital, which encouraged customers to "unbank" themselves and offered some crypto incentives for them to do so on the crypto firms' platforms.
"As many are now learning the hard way, the risks of these arrangements are materially different than their representations," Hsu said.
Hsu said he urges people to read the letters that Celsius clients sent to the bankruptcy judge. The model has come under security from the Federal Deposit Insurance Corp., which
