Currency Comptroller Puts Brakes on TradFi Move into Crypto

The nation’s top banking regulator overseeing the largest federally chartered banks warns he doesn’t think bankers should integrate crypto into their products and services.

“Until crypto matures, we need to be careful and cautious in how we allow crypto and [traditional finance] to interact,” Michael Hsu, Acting Comptroller of the Currency,” told an audience at the DC Fintech Week conference.

As head of the Office of the Comptroller of the Currency, Hsu oversees the nation’s largest federally chartered banks, including Goldman Sachs Group Inc. GS, -0.22%   Wells Fargo & Co.  WFC, -1.93% and Bank of America Corp.  BAC, -2.14%

Hsu argued that cryptocurrency companies often pose risks to the public because they “disguise” their products as akin to traditional banking offerings, even though the underlying technology and regulatory obligations faced by those companies can be very different.

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Hsu described a July meeting between the Financial Stability Oversight Council and representatives of the crypto exchange FTX, where he said the company’s presentation presumed that financial stability would be enhanced through the integration of the crypto economy and the traditional financial system.

“I could not disagree more,” Hsu said. “Integrating an immature crypto industry and a mature traditional financial system without guardrails and gates would be imprudent. Any incremental gains in efficiency and convenience would be heavily outweighed by the increase in cross-contagion and systemic risk.”

While Hsu is negative on crypto, his position will actually have a negative impact on what TradFi banking lobbyists say they want.

Bank lobbyists said in a position paper submitted to the Basel Committee on Banking Supervision last week that they want more integration of TradFi and crypto, because without it “it may not be economically viable and rational to make the investments necessary to facilitate clients’ needs on crypto asset-related activities, which likely would result in a shift of activity in this space to the nonbank sector,” which is less regulated.

Bankers see the future and they know DeFi is what people want.