So-called crypto "exchanges" often function as a mix of exchange, broker-deal and bank.

100%. People are being fooled by the word Exchange. It makes them think that this is the same category as NYSE or NASDAQ.

Exchange should be a sort of a reserved word, like bank.

It is. But in the real world there is no compiler to prevent misuse. There is only a very lazy and incomplete runtime checker.

Even compiler is kind of a misused word though...

Runtime checker as in the guys who are eager to correct the terminology? Hahahaha

Of course they can if they're running on fractional reserves AKA fake liquidity. I don't think there is any regulation against them doing that.

In its terms of service, FTX was supposed to hold the customer assets at 1:1 ratio.

Not doing so is fraud, and there's already regulation against fraud.

It's totally illegal and the SEC is chatging everyone they can reach. But most are out of reach, because they are outsdt US and the Presidents refuse to use the military to defend USAns against finacial warfare.

They absolutely can if they operate like banks with a fractional reserve. All of them do, they cannot resist the temptation to "efficiently allocate" the huge amount of money they are sitting on.

That's what the fraud is.