How Global Regulators Plan to Target Crypto Firms After FTX Collapse

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The crash of the FTX exchange has given greater urgency to regulating the crypto sector and targeting such “conglomerate” platforms will be the focus for 2023, the new chairman of global securities watchdog IOSCO said in an interview.

Jean-Paul Servais said regulating cryptocurrency platforms could draw on principles from other industries that deal with conflicts of interest, such as credit rating agencies and market benchmark compilers, without having to start from scratch.

Crypto-assets like Bitcoin have been around for years, but regulators have resisted jumping in to write new rules.

But the implosion at FTX, which has left an estimated one million creditors with losses totaling billions of dollars, will change that, Servais told Reuters.

“The sense of urgency was not the same even two or three years ago. There are some dissenting opinions on whether crypto is a real problem on an international level, as some people think it is still not a material problem and risk,” said Servais.

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

IOSCO, which coordinates rules for G20 countries, among others, has already set out principles for regulating stablecoins, but now the focus is on platforms that trade in them.

In the regular financial sector, there is a functional separation between activities such as brokerage, trading, banking services and issuing, each with its own rules of conduct and safeguards.

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“Is that the case for the crypto market? I would say mostly no,” Servais said.

Crypto “conglomerates” like FTX have emerged, serving multiple roles such as brokerage services, custody, proprietary trading, token issuance, all under one roof giving rise to conflicts of interest, Servais said.

“For investor protection reasons, it is necessary to provide additional clarity to these crypto markets through targeted guidance on how to apply IOSCO’s principles to crypto assets,” Servais said.

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

Madrid-based IOSCO, or International Organization of Securities Commissions, is an umbrella body for market watchdogs such as the Securities and Exchange Commission in the United States, Bafin in Germany, the Japanese Financial Services Agency and the UK Financial Conduct Authority, all of which are committed to for application of the recommendations of the body.

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The European Union’s new cryptoasset markets or MiCA framework is an “interesting starting point” for developing global guidance as it focuses on oversight of crypto operators, said Servais, who also chairs the Belgian financial regulator FSMA.

“I think the world is changing. We know there is room to develop new standards for oversight of these types of crypto conglomerates. There is a clear need,” Servais said.

© Thomson Reuters 2022


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