Crypto can learn from SEC about whistleblowers.

It's no secret that the Securities and Exchange Commission and cryptocurrency enthusiasts aren't exactly the best of friends. But there is one thing that crypto can take away from the SEC – the whistleblower program.

Even the most staunch critics of the SEC struggle to argue against the merits of their whistleblower program. It can be seen as the gold standard for encouraging insiders to report breaches of security laws by offering financial rewards and protection from retaliation. If crypto is to survive and thrive, it needs to clean up its act, and an indexing program similar to the SEC's — but tailored to crypto's specific needs — is the best way to achieve this.

We need to work with the SEC and regulators in crypto's most important jurisdictions to develop a global standard for reporting in the crypto industry – including Hong Kong, the United Arab Emirates, the European Union and other emerging crypto hubs. By putting token protection and incentive mechanisms within the boundaries, the program can successfully reduce some of the risks that arise from information asymmetry between users and those who operate their crypto platforms.

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This is no mean feat, but we continue to expose our industry to risk and malpractice by failing to provide adequate protections for those who, if left unchecked, can expose us to harm.

The need for a global unified index standard

The SEC's indexing program — and indeed the Commodity Futures Trading Commission's program — contains elements that crypto can use. However, a more comprehensive and transparent program is needed for the global crypto industry in all its diversity.

There is great scope for crypto exchanges and other members of the ecosystem to engage the regulators to create a meaningful and global consensus on a crypto-focused index program in particular. A program tailored to our industry can include such things as centralized exchange manipulation, ICO scams and scam projects, decentralization of finance (DeFi) protocols, hacking and carpet pulling to name a few.

Many high profile examples could have been avoided if we had such a program in place earlier. Any situation where there was a breach of fiduciary duty and at least one individual knew that it was happening could have been avoided if the appropriate protections and incentives were not only in place but harmonized internationally. This can be with FTX, QuadrigaCX, OneCoin, JPEX and others.

These examples illustrate the real-world consequences of inadequate oversight and the critical role whistleblowers play in preventing financial risks. They serve as strong reminders of the need for strong mechanisms to allow individuals to report abuse without retaliation, contributing to a safer and more transparent crypto marketplace.

Many of us in the industry are working hard to create a fair and equitable financial system. These efforts must not fail at the fault of a few.

How it works in practice

If this is to be achieved, the crypto ecosystem must work together. A tall order, perhaps, but by no means impossible.

Some progress can be made by establishing advisory panels that include industry experts, regulators, and representatives of successful indexing programs. The ultimate impact comes from regulatory bodies that can take action against wrongdoers while protecting individuals who wish to raise the alarm. No licensing system is complete without this program.

If it is related to licensing – the license application can be considered invalid and worthless without fulfilling the false standard – we will accelerate the international acceptance of such programs. Emphasizing the need for a whistleblowing program as part of the licensing requirements will focus on anti-fraud and unethical practices. It suggests that regulatory frameworks for crypto should be not only reactive but also preventive, setting higher standards for operational transparency and ethical conduct.

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While under the supervision of regulators, further cooperation on this will emphasize the industry's shared responsibility for ethical practices. It signals to both the public and investors that the crypto industry is committed to meaningful self-regulation and high standards of integrity.

Exchanges will continue to play an important role in getting people into crypto. However, the entry of asset managers that offer ETFs accelerates the need for the entire crypto ecosystem – but especially exchanges – to step up their game and do a great job of restoring trust and creating safe and trusted bridges to digital assets.

The time is now

The SEC is an unlikely banana, but this call to action comes at a critical time for our industry. With ever-evolving regulatory standards and calls for regulation, the crypto fraud standard cannot be seen as just a supplementary tool, but rather as a fundamental element in building a sustainable and ethical crypto economy.

Now is the time to address this. As the bull run resurgence rages on, we must all tackle corruption to win the trust of newcomers and restore trust among consumers who have been badly burned by bad actors.

If the industry fails to take immediate action, we leave the market vulnerable to fraud, fraud and betrayal of public trust. It can hinder the growth and maturity of the crypto industry, and ultimately it can hinder the progress of building a better financial system that serves everyone. Humanity deserves better.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.