How Global Regulators Plan To Target Crypto Firms After FTX Collapse

The crash of the FTX exchange has put a greater urgency on regulating the crypto sector and targeting these ‘conglomerate’ platforms will be a focus in 2023, the new chairman of global securities watchdog IOSCO said in an interview.

Jean-Paul Servais said that the regulation of cryptocurrency platforms could be based on the principles of other sectors that handle conflicts of interest, such as credit rating agencies and market aggregators, without starting from scratch.

Cryptoassets like Bitcoin have been around for years but regulators have refused to jump to write new rules.

But the FTX filing, which has left an estimated 1 million creditors facing billions of dollars in losses, will help change that, Servais told Reuters.

“The sense of urgency was not the same even two or three years ago. There are conflicting opinions about whether crypto is a real problem at the international level because some people think that it is no longer a matter of materiality and risk,” said Servais.

“Things are changing and because of the communication between different types of businesses, I think it’s important now that we can start a conversation and that’s where we’re going.”

IOSCO, which oversees the regulations of the G20 countries and others, has already put in place regulations to regulate stablecoins, but now the focus is turning to the platforms they trade on.

In general finance there is a functional separation between activities such as sales, trading, banking services and issuance, each with its own set of rules of conduct and safeguards.

“Is that the case with the crypto market? I’d say most of the time it’s not,” Servais said.

Crypto ‘conglomerates’ like FTX have emerged, performing multiple roles such as sales services, custody, proprietary trading, token issuance all under one roof creating a conflict of interest, Servais said.

“For reasons of investor protection, there is a need to provide more clarity to these crypto markets through targeted guidance on the application of IOSCO principles to crypto assets,” Servais said.

“We intend to publish a consultation report on these issues in the first half of 2023,” he added.

Madrid-based IOSCO, or the International Organization of Securities Commissions, is an umbrella organization for market watchdogs such as the Securities and Exchange Commission in the United States, Bafin in Germany, Japan’s Financial Services Agency, and the UK Financial Conduct Authority. , all committed to using physical recommendations.

The European Union’s new markets for cryptoassets or the MiCA framework is an “interesting start” to develop a global direction as it focuses on supervising crypto operators, said Servais, who is also the chairman of the Belgian financial regulator FSMA.

“I think the world is changing. We know there is some room to develop new standards regarding the supervision of these types of crypto conglomerates. There is an obvious need,” said Servais.

© Thomson Reuters 2022

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