Regulators should be faster and bolder in taming cryptocurrency markets and should break up companies with intractable conflicts of interest, the global securities watchdog said as it unveiled a blueprint to rein in the “wild west” of finance.
Iosco, the umbrella group for global markets regulators, on Tuesday published guidelines for authorities toughening their standards in the wake of a string of industry blow-ups, notably crypto exchange FTX. The 18-point plan covers areas including conflicts of interest, disclosure rules and governance.
“The diversity we’ve got at the moment across jurisdictions is not that they’re moving in different directions, but that they haven’t gone far enough in the direction that they all know they should go in,” Iosco secretary-general Martin Moloney told the Financial Times.
“What we would say to jurisdictions is just push ahead. They’ve all got different legal frameworks, different regulatory frameworks. Just push ahead, do it to this standard as quickly as you can . . . It’s not helpful for anyone to hold back at this point.”
The failure of FTX and its close relationship with Alameda Research, an associated trading group, has given regulators fresh impetus to tighten or create standards. In the past, companies like Binance, the world’s largest exchange, have clashed with global regulators over concerns about money laundering policies and consumer protections. The company has also faced criticism over the transparency of its corporate structure.
Last week the EU finalised a sweeping package of crypto regulations, while the UK is in the early stages of developing its own rules, which it promises will be “more agile” than in Europe.
Moloney and Iosco chair Jean-Paul Servais, who also chairs Belgium’s securities regulator, noted that many crypto companies offer services such as broking, trading, custody and market-making. In traditional finance firms, such activities are separated from each other.
The proposals ask regulators to consider whether some conflicts of interests are “sufficiently acute that they cannot be effectively mitigated”. If so, they may require “more robust measures such as legal disaggregation and separate registration and regulation of certain activities”.
“This is new,” said Moloney. “So this is quite a powerful challenge . . . on the part of Iosco to the global regulatory community to actually deal with this issue of business as having been built up on the basis of conflicts of interest.”
Iosco does not have powers to compel regulators to adopt the rules, but Moloney said he was “confident” the proposals would be implemented by Iosco’s membership, which straddles 130 countries and covers 95 per cent of global financial markets.
“We don’t usually, frankly, have a problem with members in persistent non-compliance with our recommendations,” Moloney said. “It will not be sustainable for our members to be in sustained non-compliance with our recommendations and I’m confident that is not going to happen.”
“I’m not aware of any significant player in the crypto market, insofar as you can figure out where they’re trading from, that doesn’t trade from a member jurisdiction. So we do have the global reach to make these recommendations work,” he added.
Servais said countries should move “as fast as possible” and noted that the G7 had on May 13 reiterated its support for implementing “effective regulatory and supervisory frameworks” for crypto assets and stable coins.
Moloney added that it would take a “number of years for even the major jurisdictions” to hit the “quite demanding recommendations in full”, which also include proposals on fair dealing, disclosure and corporate governance.
“In the interim, investors need to continue to be really cautious about crypto assets service providers telling them that they’re regulated and therefore everything is fine,” said Moloney.
The Financial Stability Board, a body of global financial policymakers, publishes its recommendations for reducing the financial stability risks from crypto in July.
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