Bloomberg — Three months after crypto exchange FTX collapsed, Argentina’s government is weighing creating oversight requirements on crypto companies, according to people with direct knowledge of the matter.
The country’s local regulator, known as the CNV, is studying launching requirements on crypto companies, such as proof of solvency, said the people, who asked not to be named discussing the plans. The CNV is planning as it awaits a congressional vote that could give it oversight authority of the crypto sector in coming weeks.
“The regulation will focus on exchanges, not tokens. The regulation will come into effect progressively, after the Congressional bill is approved,” CNV President Sebastian Negri said in an interview. “We will set up a working group with the industry to agree on the new regulatory parameters, which will include that companies comply with requirements of assets and solvency to back the risk these assume.”
Negri declined to specify whether the agency will ask companies for proof of solvency, saying they will discuss this with the crypto industry.
Argentines are among the biggest adopters of crypto in the region, in part due to stringent currency controls and annual inflation of almost 100%. Regional users were heavily affected by the FTX meltdown, with some of the largest local crypto exchanges seeing withdrawals of as much as 25% of their deposits, according to a person with knowledge of the matter.
Argentina’s government is seeking to strengthen regulation before of a visit by the global money laundering watchdog FATF, which is expected for September. Officials and regulators plan to demand that crypto companies have similar requirements as others in capital markets, such as knowledge of the customer, transparency about their activities, suitability of their board and reporting of suspicious transactions over $1,000, the people said.
FTX, one of the world’s largest cryptocurrency buying and selling platforms, filed for bankruptcy on Nov. 11 and left a trail of creditors worth more than $3 billion, according to a court filing. Its misfortune began just days after doubts started to circulate about its solvency, prompting many users to rush to withdraw their money from it.
The FTX bankruptcy spurred investors in crypto to demand a closer examination of the balance sheets of companies throughout the industry. In November, shortly after FTX collapsed, Ethereum co-creator Vitalik Buterin published a blog post in which he said a real-time solution for exchanges would be ideal for the industry. Many exchanges, including Binance, have been quick to promote so-called proof of reserves statements, though critics say they don’t provide a completely transparent look into the companies.
For some companies, the loss of credibility that followed FTX’s collapse led to proactive measures to try to assure users that their savings are safe amid the low level of government regulations.
“I received at least 10 calls at the end of last year from small investors who went bankrupt because they had between $5,000 or $20,000 in cryptocurrencies receiving returns in FTX,” Ariel Scaliter, co-founder of startup Agrotoken and the director of a postgraduate program in blockchain at Universidad del CEMA in Buenos Aires. “So, there was a huge change in the behavior of companies, which were quick to recognize the hit and focused on giving signs of solvency.”
As part of the push for self-regulation, Lemon Cash, which was the country’s most downloaded crypto app last year, launched on Thursday a commitment to publish its “proof of solvency,” which includes its reserves and its liabilities. App users are able to monitor withdrawals in real time, as well as to see which the total amount and names of tokens deposited in the wallet.
“The community has lost confidence in crypto and we must bring it back,” said Francisco Landino, Lemon Cash’s director of blockchain, at a company event in Buenos Aires.
“The proof of solvency is the most relevant test. We will make it public, whether it is a regulatory requirement or not,” said Bitso CEO Julian Colombo. “For any platform to be solvent, the assets must be greater than its liabilities. Being solvent means guaranteeing that if clients decide to withdraw 100% of their funds at the same time, they can do so.”
A spokeswoman at crypto exchange Ripio did not immediately reply to a request for comment.
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