The SEC’s crypto crackdown

This is an audio transcript of the FT News Briefing podcast episode: ‘The SEC’s crypto crackdown’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, February 16th, and this is your FT News Briefing.

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The World Bank needs a new president, and Scotland is looking for a new leader, too. Plus, US regulators are turning up the heat on crypto.

Scott Chipolina
And I think many in the industry now feel that the United States is seeking to sort of ringfence its own financial system and isolate crypto.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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The World Bank yesterday announced that president David Malpass will step down at the end of June. That’s nearly a year before his term expires. Malpass was appointed by former US president Donald Trump, and Malpass told the board he’s leaving to pursue new challenges. I’m joined now by the FT’s climate reporter in Washington, Aime Williams. Hi, Aime.

Aime Williams
Hi.

Marc Filippino
So, Aime, do we have a sense of why Malpass is stepping down?

Aime Williams
Well, Malpass has been under a ton of pressure for quite a while now of the bank’s perceived lack of progress on climate change issues. So a lot of governments see the World Bank, which has a lot of money to lend to developing countries, as part of the solution to climate change. They want the bank to focus more on lending money to countries who want to transition their energy systems to clean energy, away from coal and oil and gas, and also to set up projects that would help them adapt to a warming planet. So a lot of G7 governments, notably the US, Germany, France and others, have been pushing the bank to move faster and to integrate climate change goals into its broader mandate.

Marc Filippino
Aime, what do you think Malpass’s legacy is gonna look like?

Aime Williams
Well, he did start off looking at how the bank could integrate more climate change goals into the way it works. So traditionally, the bank’s mission is to alleviate poverty and spread prosperity around the world. But unfortunately, he has also been accused, notably by former vice-president Al Gore, of being a climate denier. And at New York Climate Week last year, he fumbled quite a bit when he was asked by a New York Times reporter whether he believed in man-made climate change. He kept saying that he wasn’t a scientist. He later rolled back on that and said that, you know, he’d been misunderstood, and he didn’t mean and of course he believes in climate change, but it attracted a lot of criticism and a lot of calls for his resignation. And I do fear that that might overshadow anything good that he did at the World Bank.

Marc Filippino
Malpass was set to serve in his role until the middle of next year. What does the World Bank do now as they look for his successor?

Aime Williams
Well, the US, as the largest shareholder, traditionally appoints his successor. In the meantime, I would expect the World Bank to appoint a caretaker president. It’s likely to be one of Malpass’s deputies, who would steer the ship until the US can come up with a candidate that they think will garner shareholder support and that person will then be installed.

Marc Filippino
Aime Williams is the FT’s climate reporter in Washington. Thanks, Aime.

Aime Williams
Thank you.

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Marc Filippino
Scotland is also looking at a leadership change. Yesterday, first minister Nicola Sturgeon said she’s quitting after eight years in power. Sturgeon led the Scottish National Party, and she’s been the face of Scots drive to split from the UK, though there has been backlash against her strategy lately. But the FT’s Lukanyo Mnydana tells us that Sturgeon still wants the next UK general election to be a referendum on Scottish independence.

Lukanyo Mnydana
But then she acknowledges that other people might disagree. She doesn’t want that decision to be made on the basis of her own personal preference, and then if she’s not going to be there to actually end up fighting it and implementing it because she says he’s not sure how long she will, how much energy she’s got for, whether it’s a week or month or a year. Because the job takes a lot of toll on somebody. And she mentioned that, you know, politics is very polarised and that she’s a very polarising person. And she’s somebody who gets a lot of abuse. Then at some point she said, “Look, I’m a human being like everybody else. Maybe it’s time now for Sturgeon, the person, as opposed to Sturgeon, the politician.

Marc Filippino
Lukanyo says it’s not clear yet what Sturgeon’s resignation means for Scotland’s independence movement.

Lukanyo Mnydana
That is the big question. Can her shoes be filled? So there’s a danger that the movement has been identified with one person and now has got to find its own new identity. But then on the other hand, she had also reached a bit of an end of the road in some sense because support for independence in Scotland has stalled, really, around about that 50 per cent level. And so she hasn’t really moved it further up in order to demonstrate that independence is indeed the will of the Scottish people.

Marc Filippino
That’s the FT’s Scotland correspondent Lukanyo Mnydana.

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The top US securities regulator yesterday proposed tougher safeguards around investors’ cryptocurrency assets. This comes after several high-profile crypto companies like FTX collapsed and showed that customers funds aren’t as safe as advertised. Yesterday’s move by the Securities and Exchange Commission is part of a broader crackdown on the crypto industry. Here’s the FT’s digital assets correspondent Scott Chipolina.

Scott Chipolina
This year, the SEC, curiously, actually specifically labelled crypto among other sectors as an area of priority for 2023, and they’ve really been true to their word in just the last couple of months since the year began. The SEC has targeted several prominent crypto firms, including a trading group called Genesis and exchanges Gemini and Kraken. Really what it tells us is that there’s a criticism from the industry as it pertains to the SEC that the agency is regulating by enforcement, and that is to say that without, you know, absent a bespoke framework for regulatory clarity that the industry I suppose wants, and I think many in the industry now feel that the United States is seeking to sort of ringfence its own financial system and isolate crypto.

Marc Filippino
So, Scott, if I’m an avid crypto investor, what might I make of all of this proposed regulation? Should I be happy? Should I be upset? Is it protecting me?

Scott Chipolina
By and large, if I can sort of step back, I would imagine that many would welcome this. But then again, there is this, a lot of folks that are in the crypto industry are sort of predisposed to be suspicious of regulation. We have to remember what crypto sort of was born as if you go all the way back to the bitcoin white paper. It was essentially pitched as an explicit rejection of the traditional financial system and its sort of key stakeholders, not only the government, but regulators and entities like banks and all the rest of it. So there will undoubtedly be a lot of folks that feel as though regulation and regulators are really anathema to what the crypto industry is trying to achieve.

Marc Filippino
Let me ask you, Scott, would this proposed regulation actually make a difference?

Scott Chipolina
I suppose it depends really on who you ask. I think that in many ways what the SEC is doing, in my view, is it’s attempting to, as I mentioned earlier, sort of ringfence the US financial system or the US market writ large and isolate it from crypto. But of course, you know, the crypto industry is global in nature, and it doesn’t, you know, start or end at America’s borders. I think if you look at the largest crypto exchange by volume by far, Binance, Binance says that it doesn’t serve US customers. There are many other exchanges that, you know, are very active outside of the United States. So I suppose a critic’s view would say that, you know, this isn’t going to make a difference in the grand scheme of things. And in fact, there are many politicians, lawmakers, academics, what have you, that have argued consistently for a, you know, a marriage of regulatory standards across not only the United States and the European Union but Asia as well. And I think that, you know, given the global nature of the industry at some point, that that may indeed be something that will come into sharper focus. But certainly in the United States, it will have an impact on industry participants that are trying to set up in the country. I think it’s quite clear that the SEC has drawn, let’s say, battle lines over the last couple of months, and it’s certainly been a thorn in many industry players’ sides, and I don’t think that that’s going to stop anytime soon.

Marc Filippino
Scott Chipolina is the FT’s digital assets correspondent. Thanks so much, Scott.

Scott Chipolina
Thanks, Marc. Pleasure.

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Marc Filippino
You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.