The FTX catastrophe, international regulators will focus on cryptocurrency platforms

The FTX exchange crisis has made it urgent to control the cryptocurrency industry in 2023 and focus on conglomerate platforms.

London: The new head of global securities watchdog IOSCO said in an interview that the collapse of the FTX exchange has led to increased urgency in regulating the cryptocurrency sector, and targeting such ‘cluster’ platforms will be the focus by 2023.

Regulation of crypto platforms can build on the principles of other sectors dealing with conflicts of interest, such as credit rating agencies and market standards aggregators, Jean-Paul Servier said, without having to start from scratch.

Crypto assets like bitcoin have been around for years, but regulators have been reluctant to step in to write new rules.

But Service told Reuters the FTX implosion, which left some 1 million creditors facing billions of dollars in losses, would help change FTX.

“The sense of urgency was not the same even two or three years ago,” Servais said. “There is a mixed opinion about whether cryptocurrency is a real problem internationally because some people think that it is still a fundamental problem and a risk “.

“Things are changing and because of the interdependence of different types of businesses, 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 and others, has already laid out principles for regulating stablecoins, but now the focus is shifting to the platforms they trade on.

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

“Is this the case for the cryptocurrency market? Most of the time I would say no,” Servier said.

Cryptocurrency ‘conglomerates’ like FTX have sprung up, Service said, performing multiple roles such as brokerage services, custody, proprietary trading and token issuance all under one roof, creating a conflict of interest.

“For investor protection reasons, there is a need to bring greater clarity to these cryptocurrency markets through specific guidance for applying the IOSCO Principles to crypto assets,” Servais said.

“We intend to publish the report of the consultations on these matters in the first half of 2023,” he added.

The IOSCO, or International Organization of Securities Commissions, based in Madrid, is the body that brings together market control agencies, such as the US Securities and Exchange Commission, Bafin in Germany, the Agency for Securities Japan and the UK Financial Conduct Authority, all of whom are bound to implement the agency’s recommendations.

Servais, who also heads Belgian financial regulator FSMA, said the EU’s new Markets in Crypto Assets or MiCA framework is an “interesting starting point” for developing global guidelines as it focuses on supervising crypto traders.

“I think the world is changing. We know there is room to develop new standards around the supervision of this type of cryptocurrency block. There is a clear imperative,” Servis said.

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