Michael Hsu Highlights Crypto Supervision Challenges at European Banking Forum

At a recent international conference organized by the European Banking Authority and the European Central Bank, Acting Comptroller of the Currency in the United States — Michael Hsu addressed the evolving challenges in bank supervision amidst a rapidly changing financial landscape. Hsu explained that the growing concern in traditional banks engaging with non-bank actors such as fintech companies leads to emerging supervisory issues.

He noted that fluctuations in phenomena such as the cryptocurrency market, the banks’ role in the growth and subsequent decline of private credit, and the recent bankruptcy of fintech middleware firm Synapse have raised numerous questions about actors and risks in Bank and non-bank systems. Hsu noted that these problems point to the importance of ensuring that rules and regulations for governing and mitigating risks evolve to counter the risks associated with information change and, particularly, financial technology.

Hsu Emphasizes Adaptive Supervision for Crypto and Financial Stability

As part of current supervisory practice, Hsu offered an example of the recent volatility in the cryptocurrency market. By the end of 2022, the decline of cryptocurrency market lost $2 trillion in value and many platform failures did not largely affect the banking system. According to Hsu, this stability was not due to luck but to proper supervision of the activities about cryptocurrencies to guarantee the safety and sustainability of the banking related activities.

He stated that this supervision approach is effective in keeping things stable even if there are many changes and financial shocks occur. Hsu highlighted the benefits of the risk-based supervisory approach as adaptable and cautious while the financial industry becomes more closely connected with innovative technologies and digital assets.

The discussion also confirmed that there is always a need for ongoing changes in the regulation of the increasing complexities and risks that arise due to the ever-changing nature of the financial landscape so that financial supervision remains effective in meeting the challenges posed by this dynamic environment.