The Regulator’s Paradox

Hello everyone,

Once again, I am writing about the role of the regulator. In June 2023, I published an op-ed in which I shared my vision of a regulator’s role. A more comprehensive and detailed blog post was also written here.

Unfortunately, and without much surprise, my recommendations were not implemented. However, with a touch of bitterness, we find ourselves 1.5 years later in the same situation. Or even worse…

Jean Cattan, who has already written on the subject of regulation and who inspired my previous op-ed, stated in a post dated January 24, 2025, that “it is the work of regulation: to build an open economic space serving the general interest far more than to ensure its surveillance.” I share this viewpoint; however, the remarks made in 2023 are still relevant today.

Bis repetita?

Interested?

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The Problem

The primary mission of a financial regulator is simple: 1) protect consumers, 2) ensure market integrity, and 3) foster a healthy economic environment.

In the FSMA’s own words, it must ensure the honest and fair treatment of financial consumers and the integrity of financial markets. Yet, when this mission is confronted with inaction, or even counterproductive decisions, the regulator paradoxically becomes an actor that further weakens those it is supposed to protect.

Today, thousands of people continue to fall victim to investment fraud. In a press release dated September 23, 2024, the FSMA reported [a 50% increase in online investment fraud reports during the first half of 2024].

Recently, the FSMA announced

• Having received a total of 2,621 reports in 2024 concerning irregular activities. This represents a 20% increase compared to 2023.

• During 2024, the FSMA published a total of 16 warnings concerning a total of 297 fraudulent entities and 396 websites.

It should also be noted that between July and December 2024, Belgian consumers reported to the FSMA having lost a total of 15,904,356.38 euros through fraud. (See also the FSMA Dashboard on the subject). This is therefore not an isolated phenomenon.

This growing scourge reveals the scale of the threat to consumers and the economy. The evolution of fraudulent techniques may call for considering complementary approaches.

An interesting and “logical” avenue would be to facilitate the emergence of legitimate players in the crypto-asset sector, for example, capable of offering innovative solutions while complying with the required standards.

By constantly talking about the roller-coaster prices of cryptocurrencies, many people fall into the trap of scammers promising returns far exceeding those of their savings accounts.

Bitcoin has risen x% in a few months, so it’s possible to make money with crypto.

This is the shortcut some victims made before clicking on a link promising astronomical returns.

The current approach, which seems to favor great caution in granting “crypto” licenses, could inadvertently create a vacuum conducive to malicious actors.

Contrary to what we see today, a more inclusive regulation that encourages responsible innovation could better protect consumers.

In this context, the action of a regulator must be examined. Certainly, the regulator communicates, alerts, and publishes warnings. But these efforts, while essential, remain insufficient against the growing ingenuity of fraudsters and the scale of losses suffered by victims.

This observation of powerlessness does not stop there. It becomes deeply alarming when one examines the regulator’s practices more closely. Far from merely maintaining passive neutrality, some regulators seem to actively discourage the granting of “crypto” licenses to serious and legitimate players. One only needs to look at the number of regulated players in Belgium in this sector.

As a reminder, a VASP regime was established in 2022 and allowed a few companies to submit a license application. For most, this application was accepted under a provisional authorization regime. Ultimately, all provisional licenses were revoked, except for one player who was able to continue operating until the truth came out… An inequitable situation for the service providers who suffered this revocation of provisional authorization, especially since the reasons for these revocations are surrounded by “an artistic vagueness” for which our Kingdom is famous.

Imagining that companies capable of providing reliable and innovative solutions are regularly slowed down, blocked, or excluded from the market under questionable pretexts or in a completely discretionary manner is, to say the least, disheartening. This behavior only amplifies the vacuum left behind. And in this vacuum, malicious actors thrive, eager to exploit poorly informed consumers or those seeking more attractive investment opportunities. (I am barely exaggerating.)

The paradox here is glaring: the regulator, by limiting the entry of serious companies, indirectly contributes to the increase in fraudulent practices.

This stance, instead of strengthening confidence in financial markets, fuels growing insecurity. Consumers, deprived of reliable alternative solutions, become easy targets for increasingly sophisticated scammers. Thus, not only does the regulator fail to fulfill its fundamental role, but it could even worsen the situation it claims to resolve.

This blockage is all the more concerning as it goes against the very principles of regulation.

I believe a regulator should be a facilitator: it must foster the emergence of effective and innovative players, capable of maintaining consumer confidence and countering the gaps left open by inaction. By refusing to adopt this proactive approach, the regulator is not merely failing in its mission; it participates in the very evil it fights, and this attitude becomes an obstacle to the development of a secure ecosystem.

To correct this trajectory, it would be necessary to reassess the governance and strategic priorities of a regulator.

The fight against investment fraud cannot be limited to warnings or awareness campaigns. It requires concrete actions, openness to serious players, and a long-term vision aimed at sustainably cleaning up the market.

As long as this reorientation is not implemented, the regulator will continue to embody a painful paradox: an institution supposed to protect, but whose inaction directly exposes consumers to malicious financial actors.

Reasons That Might Justify the Inaction

This criticism is strong, and one could find reasons for this inaction. I am also aware that I do not have complete information, but this obscurantism prevents us from having an objective view of the situation.

But it is not for lack of trying.

How many have tried? How many extended hands and letters left unanswered?

In any case, let us not be pessimistic. If there are problems, can we find solutions?

Is Excessive Caution Justified?

Can the regulator’s excessive caution be justified by real systemic risks?

In an international context, could a conservative approach at the national level perhaps protect consumers more than a hasty opening to new players?

This reasoning can be understood but is not supported by the facts. The crypto-asset market is a global market, easily accessible and available at all times, where many players operate in Europe under the cover of a proper license.

The full entry into force of the European MiCA regulation harmonizes legislation and lays the foundations for a clear framework.

If Belgium experienced its own “FTX” (which could be resolved without too much damage for the victim clients), it does not seem sufficient to me to undermine every attempt and effectively block initiatives and other license applications on the pretext of a single case. The USA did not retreat after FTX, and the statements of the freshly elected American President (whatever one thinks of him) suggest an acceleration of the sector in the USA. The same goes for France, which did not necessarily scale back after the crypto scandals that shook investors in 2021 and 2022.

And generalizing from one case to the entire sector is a lack of nuance that honors no one. Let us move beyond cliches and move forward!

Limited Financial Resources?

The regulator’s limited resources could explain this strategy: rather than voluntary inaction, it could be a “constrained prioritization” of available means.

On this point, I obviously have no objective evidence to put on the table. It is a hypothesis I am making, and if it were to be a reality, then the question of this “constrained prioritization” must be asked.

The crypto topic is set aside for what reason? For the benefit of what? Can we boast of regulated flagships? Which sector supervised by the regulator enjoys significant success on our soil?

If the answer is mixed or worse, that no supervised sector performs well, this constrained prioritization should be challenged in order to perhaps allocate resources to other more “promising” or “innovative” themes.

Has Belgium really given the sector a chance? Some will say yes, although I believe the mishap mentioned above can in no way be representative of the sector. This answer remains, however, biased.

The crypto sector is not represented by a single player. There are so many other stakeholders in this sector. As proof, the op-ed signed in December 2024 by 37 signatories (including myself) from various sectors, which seems to confirm the need to give this sector a chance.

A Systemic Distrust of Financial Institutions

The impact of regulatory inefficiency extends well beyond the immediate financial losses of some victims. In the long run, it generates an erosion of social trust that manifests itself within the traditional financial sector.

Increasingly, we observe that citizens develop a more or less moderate aversion to financial investments in the traditional sector given the returns offered. The apparent protection of the financial sector gives ammunition to all those who suspect an all-powerful banking lobby, protecting its own interests and preventing crypto from emerging.

Furthermore, financial education is a topic that has been sidelined for too long. Initiatives on the subject such as the recent proposals by Matthias Baccino confirm this observation. Today, a significant portion of the population does not have the tools and understanding to navigate the financial sector. To borrow Baccino’s punch line, “it’s time to take your money into your own hands!”

This financial acculturation is necessary, and unfortunately, aberrations can be found at every level. Listen to the very recent discussion on France Inter and Claire Balva’s analysis. How can a France Inter journalist have such a poor understanding of a concept as “basic” as supply and demand, and why, as Claire Balva mentions, does such a disconnect with these concepts only manifest itself for crypto, and not for other sectors? (2008 seems already far away in some people’s minds.)

This distrust extends even to legitimate and regulated players. Consumers are outraged when they see the rock-bottom interest rates offered on their savings accounts.

Furious to see their savings eroded by inflation, some consumers with a bit of capital seek more profitable alternatives from other players. Considering, sometimes wrongly, that the financial system is rotten or at the very least suffering from serious ailments.

We must continue to work for a high-performing and innovative ecosystem. Thank you for reading Cryptomonnaie.be!

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