The creation of a regulatory framework for crypto and especially for large trading platforms, which have other activities in parallel, will be the focus of the global financial regulator IOSCO (International Organization of Securities Commissions) in 2023, after the collapse of the cryptocurrency exchange FTX.
IOSCO’s new chairman, Jean-Paul Servais, told Reuters that regulation for crypto platforms may be based on what is in place in other industries where there are conflicts of interest, such as credit rating agencies and companies that compile benchmark price indices.
Until now, regulators have not wanted new rules for bitcoin and other cryptocurrencies, but the collapse of FTX, which left a million customers facing multi-billion dollar losses, will change the landscape.
“Things are changing and because of the interconnectedness of different activities, I think it’s important now to be able to start a conversation and that’s where we’re headed,” he said.
IOSCO has set rules for stablecoins
IOSCO, which coordinates international rules in stock markets, has already set rules to regulate stablecoins, but now the focus is turning to trading platforms.
Large crypto exchanges, such as FTX, have many activities, such as providing brokerage and custody services, while also trading for their own account and issuing cryptocurrencies, resulting in conflicts of interest, Servais said.
“To protect investors, there is a need for a clearer picture of these crypto markets with targeted guidance on the application of IOSCO principles to crypto assets,” the IOSCO chief said.
IOSCO, based in Madrid, is the collective body of securities commissions, such as the SEC in the US and Bafin in Germany, which implement its recommendations.
Binance also calls for rules and market supervision
The call for a strict regulatory framework for crypto is now also being put forward by industry players, which is shaken by the bankruptcy of a number of companies, particularly FTX, which collapsed in the space of a few days.
To prevent a further devaluation of the industry, the head of major exchange Binance, Changping Chao, said he plans to lead an effort with others to have global rules in the crypto market. “We need to increase the transparency of the industry. We need to work closely with regulators around the world to make the industry stronger,” he said.
Bitcoin and Ethereum, the two largest cryptocurrencies, have lost more than 75% of their value compared to a year ago, while the industry’s market capitalization has shrunk from $3 trillion to $900 billion.
The companies that went bankrupt
The continued bankruptcies of companies since the middle of the year, the latest being that of FTX, have led to the loss of assets of their clients, who often get a small fraction of their investments.
In June, cryptocurrency bank Celsius stopped withdrawals by customers due to “extreme market conditions”. Binance also stopped withdrawals.
In July, the large cryptocurrency hedge fund, Three Arrows Capital (3AC), defaulted on a loan of more than $670 million and filed for bankruptcy. The company’s risky strategy involved borrowing money and investing it in other risky cryptos.
After 3AC’s fall, the brokerage Voyager Digital was on the same trajectory as it was its own loan that 3AC defaulted on.
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