Jean-Paul Servais said regulation of cryptocurrency platforms could draw inspiration from the principles of other industries that manage conflicts of interest, such as credit rating agencies and market benchmark compilers, without having to start from scratch.
Cryptocurrencies like bitcoin have been around for years, but regulators have resisted the urge to rush into writing new rules.
But the implosion of FTX, which 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 two or three years ago. There are different opinions on whether crypto is a real problem internationally, because some people think it is not. It is not yet a problem and a significant risk,” Servais said.
“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 established principles for the regulation of stablecoins, but the focus is now on the platforms that trade them.
In traditional finance, there is a functional separation between activities such as brokerage, trading, banking and issuing, each with its own rules of conduct and safeguards.
“Is that the case for the cryptocurrency market? I would say no most of the time,” Servais said.
Crypto “conglomerates” like FTX have emerged, serving multiple roles such as brokerage, 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 the application of the IOSCO Principles to crypto assets,” said Servais.
“We plan to publish a consultation report on these issues in the first half of 2023,” he added.
IOSCO, or International Organization of Securities Commissions, headquartered in Madrid, is an umbrella organization for market regulators such as the Securities and Exchange Commission in the United States, Bafin in Germany, the Financial Conduct Authority of Japan and the Financial Conduct Authority of the United Kingdom , all of whom are committed to implementing the organization’s recommendations.
The European Union’s new framework for crypto asset markets or MiCA is an “interesting starting point” for the development of global guidelines as it focuses on the oversight of cryptocurrency operators, Ms 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 the oversight of these types of cryptocurrency conglomerates. There is a clear need for it,” said Mr. Servais.