The Securities and Exchange Commission (SEC) and the cryptocurrency community have had a contentious relationship. However, there is one aspect of the SEC that the crypto industry should embrace – its whistleblower program. The SEC’s program is considered a gold standard, as it incentivizes insiders to report securities law violations by offering rewards and protection from retaliation. If the crypto industry wants to thrive in the long run, it needs to establish its own tailored whistleblower program, working in collaboration with the SEC and regulators in key crypto jurisdictions worldwide.
Creating a global standard for whistleblowing in the crypto industry is crucial. By implementing whistleblower protection and incentive mechanisms across borders, the program can effectively address the information asymmetry between users and platform operators, mitigating potential risks. This would require engaging with regulators in important crypto hubs like Hong Kong, the United Arab Emirates, the European Union, and other emerging markets.
While the SEC’s whistleblower program and the Commodity Futures Trading Commission program provide some inspiration, the crypto industry needs a more comprehensive and explicit program that accounts for its unique characteristics. This program should cover various areas, including malpractice at centralized exchanges, ICO scams, fraudulent projects, and manipulation of decentralized finance protocols.
The lack of a comprehensive program has led to high-profile examples of misconduct and fraud in the crypto industry. Implementing the appropriate protections and incentives at a global level could have prevented incidents at FTX, QuadrigaCX, OneCoin, JPEX, and others. These examples highlight the need for robust mechanisms that empower individuals to report wrongdoing without fear of reprisal, ensuring a safer and more transparent marketplace.
To achieve this, the crypto ecosystem must work together. Establishing consultative panels with industry experts, regulators, and representatives from successful whistleblower programs can facilitate progress. However, the real impact will come from regulatory bodies that can enforce action against wrongdoers while protecting whistleblowers. A whistleblowing standard could be linked to licensing requirements, making it a prerequisite for obtaining a license. This would accelerate the global adoption of such programs and emphasize the industry’s commitment to proactive measures against fraud and misconduct.
Collaboration from exchanges is crucial in building trust and stability in the ecosystem. As asset managers offering ETFs enter the crypto space, exchanges need to enhance their operations and restore trust. The industry should be seen as committed to meaningful self-regulation and high ethical standards.
The time to establish a whistleblower program for the crypto industry is now. With increasing scrutiny and calls for regulation, such a program would not only ensure compliance but also contribute to building a sustainable and ethical crypto economy. It is essential to address malpractice and regain the trust of newcomers and users who have been affected by bad actors. Failure to act swiftly could leave the market vulnerable to manipulation, fraud, and a loss of public trust, hindering the growth and progress of the crypto industry.
In conclusion, the crypto industry should learn from the SEC’s whistleblower program and create its own tailored program to address misconduct and fraud. Collaboration with regulators and exchanges is necessary to establish a global standard for whistleblowing in the crypto industry. By doing so, the industry can build a safer, more transparent, and ethical ecosystem that serves everyone.