Global Securities Regulators to Target Conglomerate Crypto Exchanges - Who Are the Losers

The FTX exchange filed for Chapter 11 bankruptcy on November 11, which created fear and anxiety across the cryptocurrency sector. More than a million customers with funds on the exchange were left stranded after the collapse. The situation has created an urgency for clear cryptocurrency regulations.

Global regulators turn their attention to crypto exchanges

2022 has seen one of the worst bear markets in crypto history. The price of Bitcoin, the largest crypto by market cap, has dropped by nearly two-thirds this year. The bear market has seen several top crypto firms collapse, such as Celsius, Three Arrows Capital, Voyager, and FTX.

According to Jean-Paul Servais, the new chair of the IOSCO global securities watchdog, crypto regulations would be a primary focus in 2023. Servais said that regulations for the cryptocurrency sector would be governed by the principles that apply to other sectors.

The cryptocurrency market is more than a decade old, but regulators have yet to develop a clear and harmonized regulatory framework. According to Servais, a clear regulatory framework will help avoid losses such as the ones suffered by the users of the FTX following its collapse.

“The sense of urgency was not the same even two or three years ago. There are some dissenting opinions about whether crypto is a real issue at the international level because some people think that it’s still not a material issue and risk,” Servais added.

He also said that the ecosystem was changing, alluding to the growing investments in the space. IOSCO has already come up with principles for regulating stablecoins. Now, the global regulatory body that has authority in G20 countries and others is turning its attention towards the platforms that facilitate trading these assets.

Separation of services was needed in crypto

In the traditional finance sector, the clear regulatory framework makes room for separating activities like brokerage, trading, issuance, and banking services. Each of these sectors has its distinct rules and regulations. However, this was not the case with the cryptocurrency market.

Some of the largest crypto exchanges, including the collapsed FTX, offer multiple services, including brokerage, trading, custody, and token issuance on one platform. According to Servais, this has created a conflict of interest.

To protect investors, Servais said that there needed to be a clear regulatory framework for the crypto markets using targeted guidance while applying the IOSCO guidelines. The regulator also added that there were plans to release consultations on this matter during the first half of 2023.z7

IOSCO has global regulatory authority. It is the umbrella organization that encompasses other regulators, such as the Securities and Exchange Commission of the United States, BaFin in Germany, the Japan Financial Services Agency, and the Financial Conduct Authority of the United Kingdom. These regulatory bodies apply the recommendations of IOSCO.

Servais has also said that the markets in crypto assets (MiCA) regulations in the European Union were a good starting point to guide global crypto regulations. MiCA laws focus on supervising crypto companies. He stressed that it was now an “obvious necessity to regulate this crypto conglomerate.

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