US Acting Comptroller Hsu: should we have a Glass-Steagall Act for crypto?

Should we be worried about crypto companies bundling various services and products? Acting US Comptroller Michael J. Hsu fired a warning shot about such “universal” crypto firms, raising the question “whether there ought to be Glass-Steagall-like separation of activities in the crypto space”.

“The ambitions of some of the larger financial services crypto firms to become “universal” (i.e., offering everything from crypto custody to retail brokerage to market making to asset management to prime brokerage)”, warranted attention, Hsu said in a recent speech.

“For starters, the rapid expansion and mixing of wholesale and retail activities at some crypto firms raise the question of whether there ought to be Glass-Steagall-like separation of activities in the crypto space,” Hsu added.

He’s also worried about the “partial and selective” supervision of crypto firms, “with no single regulator having a comprehensive view” of a particular crypto company. “Without comprehensive, consolidated supervision, no single regulator can see the whole picture and understand how a firm as a whole operates and takes risk.”

However, Hsu made clear he’s not just increasing the pressure on crypto firms, but also on traditional financial institutions and even on the regulators themselves:

“Before banks get too comfortable, I feel it important to note that I am not here to defend traditional banking and finance. Banks have been slow to adapt to change. Some groups, such as the underbanked, communities of color, rural communities, and small businesses, have felt poorly served by the banking industry. And residual distrust from the 2008 financial crisis remains.”

These paved the way for fintech and crypto, Hsu said. “I want to be clear: everybody needs to level up, including banks.” And, he added, regulators have to level up too.

Hsu also singled out stablecoin issuer Tether and crypto exchange Binance.

Popular stablecoin issuers and other large “universal” crypto firms should “embrace comprehensive, consolidated supervision”. This would “clearly differentiate safe and sound crypto firms from those that are regulated only partially and  have a history of control lapses, such as Binance and Tether”, Hsu said.

Shortly after taking office, Hsu ordered a review of the OCC’s bank charter applications and crypto interpretive letters under his predecessor Brian Brooks. He stated at the time he wanted a more “holistic” strategy for individual chartering decisions.

That review has now been concluded, Hsu indicated. He said the OCC will communicate feedback and decisions to individual bank charter applicants “in the coming weeks”.

Even if bank charters are granted, Hsu’s warning against “universal” crypto firms combining various services and products sets the scene. “Should certain crypto activities even be allowed to mix?”, he asked.

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