Regulators should be quicker and bolder in taming cryptocurrency markets and should break up companies with intractable conflicts of interest, the global securities regulator said as it laid out a plan to rein in the "wild west" of finance.
Iosco, the umbrella group for global markets regulators, published guidelines on Tuesday for authorities to toughen their standards in the wake of a series of industry outbursts, notably FTX crypto exchange. The 18-point plan covers areas including conflicts of interest, disclosure rules, and governance.
โThe diversity that we have right now between jurisdictions is not that they are moving in different directions, but that they haven't gone far enough in the direction that everyone knows they should be going,โ Iosco Secretary General Martin said. Moloney told the Financial Times.
โWhat we would say to jurisdictions is just move on. They all have different legal frameworks, different regulatory frameworks. Go ahead, do it to this standard as fast as you can. . . It is of no use for anyone to hold back on this point.โ
The failure of FTX and its close relationship with Alameda Research, an associated trade group, has given regulators new impetus to toughen or create standards. In the past, companies like Binance, the world's largest exchange, have clashed with global regulators over concerns about money laundering policies and consumer protection. The company has also faced criticism for the transparency of its corporate structure.
Last week the EU finalized a comprehensive package of crypto regulationswhile the UK is in the early stages of developing its own rules, which it promises will be "more agile" than in Europe.
Moloney and Iosco Chairman Jean-Paul Servais, who also heads Belgium's securities regulator, noted that many cryptocurrency firms offer services such as brokerage, trading, custody, and market making. In traditional financial companies, these activities are separated from each other.
The proposals ask regulators to consider whether some conflicts of interest are "sharp enough that they cannot be effectively mitigated." If so, they may require "stronger measures such as legal unbundling and separate registration and regulation of certain activities."
โThis is new,โ Moloney said. โSo this is a pretty powerful challenge. . . by Iosco to the global regulatory community to really deal with this problem of business as if it was built on conflicts of interest.โ
Iosco has no powers to force regulators to adopt the rules, but Moloney said he was "confident" Iosco members would implement the proposals, which span 130 countries and cover 95 percent of global financial markets.
โNormally, frankly, we don't have a problem with members who persist in not meeting our recommendations,โ Moloney said. โContinued non-compliance with our recommendations will not be sustainable for our members and I am confident that will not happen.โ
โI am not aware of any major player in the cryptocurrency market, to the extent that I can find out where they are trading from, that does not operate from a member jurisdiction. So we have the global reach to make these recommendations work,โ he added.
Servais said countries should move "as quickly as possible," noting that the G7 had a May 13 reiterated their support to implement "effective regulatory and supervisory frameworks" for crypto assets and stablecoins.
Moloney added that it would take "a number of years for even major jurisdictions" to reach the "fairly demanding recommendations in their entirety", which also include proposals on fair dealing, disclosure and corporate governance.
โIn the meantime, investors should continue to be very wary of crypto asset service providers telling them they are regulated and therefore all is well,โ Moloney said.
The Financial Stability Board, a body of global financial policymakers, publishes its recommendations for reducing the financial stability risks of cryptocurrencies in July.
