Regulating Crypto Platforms: A New Urgency Post-FTX Crash

Urgency in Crypto Regulation

The collapse of the FTX exchange has heightened the urgency for regulating the crypto sector. The International Organization of Securities Commissions (IOSCO), led by Jean-Paul Servais, is focusing efforts on targeting crypto conglomerate platforms in 2023. These platforms often combine multiple financial services under one roof, raising conflicts of interest and investor protection concerns.

Learning from Established Sectors

Servais suggests that regulating crypto platforms can draw insights from established sectors like credit rating agencies and market benchmarks, which manage conflicts of interest effectively. This approach can help avoid starting regulatory frameworks from scratch, making the process more efficient.

Changing Perspectives on Crypto Risks

Historically, regulators have been hesitant to develop new rules for cryptoassets. However, the FTX implosion, which left many creditors facing significant losses, has shifted this stance. The growing interconnectivity of various business types within crypto markets emphasizes the need for robust discussions and regulations.

IOSCO's Role and Plans

IOSCO, a global body coordinating securities regulations across G20 countries, has already set principles for stablecoins. The focus now shifts to platforms trading these assets. In traditional finance, activities like broking and trading are functionally separated with specific conduct rules. Such separation is often absent in the crypto market, increasing risks.

Investor Protection and Guidance

There is a clear necessity for additional clarity and targeted guidance to apply IOSCO’s principles to crypto assets. IOSCO plans to publish consultation reports on these issues in the first half of 2023 to enhance investor protection.

Global Standards and the EU's Role

The European Union's Markets in Cryptoassets (MiCA) framework serves as a promising starting point for developing global guidance on crypto operator supervision. Servais, also chair of Belgium's FSMA, emphasizes the need for new standards to address the evolving landscape of crypto conglomerates.