The International Organization of Securities Commissions (IOSCO) has recently released a report that could potentially outline the future of global crypto regulation. This organization, which comprises regulators from around the world and represents 95% of the global securities market, has established a Fintech Task Force to devise new crypto policy recommendations. With public consultation open through July 31, this could be a pivotal moment for how cryptocurrencies are regulated globally.
IOSCO’s report proposes 18 recommendations, covering six distinct areas such as conflicts of interest arising from the integration of various functions, cross-border risks, regulatory cooperation, market manipulation, and fraud. This effort to set a global baseline for crypto regulation is ambitious, Ernst and Young EMEIA lead suggested, though its effectiveness remains to be seen.
One of the key recommendations advises regulators to prevent crypto companies from combining specific functions within a single legal entity or any group of affiliated entities. This would mean prohibiting crypto companies from operating exchanges, trading firms, and custody businesses under the same legal umbrella. This idea is firmly rooted in the recent collapse of one of the industry’s major players, the now-bankrupt crypto exchange FTX.
FTX was once the third largest crypto exchange, trailing only behind giants Binance and Coinbase. However, its downfall came after a bank run ensued when Binance CEO Changpeng Zhao announced that his exchange would liquidate its FTT position. This decision was influenced by rumors of FTX CEO Sam Bankman-Fried lobbying against other industry players.
As the situation unfolded, it was revealed that FTX had combined customer funds and sent them to its sister company, Alameda Research, which suffered from several bad trades. This controversy highlights the dangers of combining various functions within the same legal entity and serves as a cautionary tale for the industry as a whole.
While some may argue that such regulations could stifle innovation, others believe that regulations are a necessary measure to ensure safety and stability in the crypto market. A global baseline of guardrails could help protect consumers and businesses from potential fraud, manipulation, and other unsavory practices.
In conclusion, IOSCO’s report presents an opportunity for regulators worldwide to address the increasingly pressing need for global crypto regulation. It may be an ambitious undertaking, but its success relies on its ability to remain flexible and adapt to the ever-evolving landscape of the cryptocurrency industry. As public consultation continues, the final outcome of IOSCO’s recommendations remains to be seen.