FTX proves MiCA should be passed fast, officials tell European Parliament committee

The European Parliament Economic and Monetary Affairs Committee held a hearing on “FTX cryptocurrency exchange collapse and implications for the EU” Nov. 30. Three European monetary officials testified, talking about FTX, blockchain technology and crypto regulation in a “preliminary assessment of the events.”

European Securities and Markets Authority (ESMA) Risk Analysis & Economics Department head Steffen Kern told the committee that ESMA “has neither regulated nor supervised FTX” and has no “information on the company beyond what is in the public domain.” The ESMA does not see significant risks to the broader financial sector from the collapse of FTX given small portion of the total market represented by crypto and the limited connections between crypto and traditional finance.

Kern concluded by saying Markets in Crypto-Assets Regulation (MiCA) legislation, due to come into force in 2024, “is tackling the right issues to introduce vital protections for investors and important rules for market participants through a common EU regime.”

On questioning, Kern said that FTX (EU) Ltd., which is domiciled in Cyrpus, had received a Markets in Financial Instruments Directive (MiFID) license, in spite of the fact that the license is not intended to cover crypto. That license was suspended Nov. 9.

Related: MiCA proponent cites FTX in advocating for regulation: ‘Crypto assets are not play money’

Member of the European Parliament and MiCA Rapporteur Stefan Berger said of FTX at the hearing, “Basically, it was SBF and a system that depended on him. […] FTX is not the failure of blockchain technology, but the failure and hubris of one person.” He continued:

“I have two political demands: firstly, MiCA has to be passed as quickly as possible. […] Secondly, it would be desirable if a large number of states outside the European Union would take the example from MiCA. A global MiCA would be the best solution.”

Deputy director general of the EU Financial Services, Financial Stability and Capital Markets Union Alexandra Jour-Schroeder told the committee, “Under the MiCA regime, no companies providing cryptoassets in the EU would have been allowed to be organised, perhaps it’s better to say disorganised, in the way FTX reportedly was.”

The committee heard from European Central Bank president Christine Lagrande Nov. 28. She pointed to the FTX debacle as evidence of the need for additional “MiCA II” legislation.