Regulators should be faster and bolder to tame the cryptocurrency market and break up firms with thorny conflicts of interest, the global securities watchdog said as it unveiled a blueprint for reining in the financial “Wild West”.
Iosco, the umbrella group for global market regulators, released guidelines on Tuesday asking authorities to strengthen their standards following outbreaks in a number of industries, notably cryptocurrency exchange FTX. Areas covered by the 18-point plan include conflicts of interest, disclosure rules and governance.
“Our current diversity across jurisdictions is not that they are going in different directions, but that they are not going far enough in the direction they all know they should be going,” Iosco general secretary Martin Moloney told UK “Financial Times”.
“What we would say to the jurisdictions is just move forward. They all have different legal frameworks, different regulatory frameworks. Go ahead and get to that standard as quickly as possible .
The failure of FTX and its close relationship with affiliated trading group Alameda Research has given regulators new impetus to tighten or set standards. Companies like Binance, the world’s largest exchange, have run afoul of global regulators in the past over concerns over money laundering policies and consumer protection. The company has also faced criticism for the transparency of its corporate structure.
Last week, the EU finalized a comprehensive set of encryption regulations, while the UK is in the early stages of developing its own rules, which it promises will be “more flexible” than Europe’s.
Jean-Paul Servais, chairman of Moloney and Iosco, who is also chairman of the Belgian securities regulator, noted that many cryptocurrency firms offer services such as brokerage, trading, custody and market making. In traditional financial firms, these activities are separated from each other.
The proposals would require regulators to consider whether certain conflicts of interest are “too serious to be effectively mitigated.” If so, they may need “stronger measures such as legal unbundling and separate registration and regulation of certain activities”.
“This is new,” Moloney said. “So it’s a pretty powerful challenge . . . Iosco is asking global regulators to actually deal with this business issue that’s based on a conflict of interest.”
Iosco has no power to force regulators to adopt the rules, but Moloney said he was “confident” the proposals would be implemented by members of Iosco, which spans 130 countries and covers 95 percent of global financial markets.
“Quite frankly, we generally don’t have a problem with members consistently not adhering to our recommendations,” Moloney said. “It is unsustainable for our members to continue to fail to comply with our advice and I am confident that will not happen.”
“I don’t know of any significant players in the crypto market that trade from member jurisdictions as long as you can figure out where they’re trading from. So we do have the global reach to make these recommendations work, ’ he added.
Countries should act “as soon as possible,” Servais said, noting that the G7 meeting on May 13 reiterate It supports the implementation of an “effective regulatory framework” for crypto assets and stablecoins.
Moloney added that it would take “years” for “even major jurisdictions” to fully meet the “fairly demanding recommendations”, which also include proposals on fair dealing, disclosure and corporate governance.
“In the interim, investors need to continue to be wary of crypto asset service providers, telling them they are regulated so everything is fine,” Moloney said.
The Financial Stability Board, a body of global financial policymakers, published recommendations in July to reduce financial stability risks posed by cryptocurrencies.