Crypto Regulation: Global Watchdog IOSCO Introduces Framework

The proposed standards encompass several key areas, including managing conflicts of interest and preventing market manipulation.

IOSCO is currently seeking public input on these regulations.

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The International Organization of Securities Commissions (IOSCO) introduced a groundbreaking global framework for regulating crypto assets and digital markets, taking into account the lessons learned from the FTX exchange collapse last year. This move addresses concerns regarding consumer protection in the industry, which previously only had to adhere to anti-money laundering checks and faced varying regulations across jurisdictions, Reuters reports.

The bankruptcy proceedings of FTX, a prominent crypto exchange, in November of the previous year, triggered the involvement of regulators worldwide. These regulators emphasised the necessity of rules for crypto "conglomerates" like FTX, which consolidate multiple activities without sufficient safeguards for customer assets, resulting in potential conflicts of interest.

According to Jean-Paul Servais, Chairman of IOSCO, the newly proposed standards mark a crucial turning point in mitigating risks associated with crypto assets such as bitcoin and ether. Servais emphasised the need to rectify the flawed foundation on which the crypto business has been allowed to expand.

The proposed standards encompass several key areas, including managing conflicts of interest, preventing market manipulation, facilitating cross-border regulatory cooperation, ensuring secure custody of crypto assets, addressing operational risks, and safeguarding the interests of retail customers.

Matthew Long, Director of Digital Assets at the Financial Conduct Authority in Britain, emphasised the importance of the proposed regulations in light of recent global events, stating that they aim to ensure the safety of crypto in the market.

Haydn Jones, Global Lead of Blockchain and Crypto Solutions at Kroll, highlighted the significance of frameworks like IOSCO's in combatting criminal activities and enabling widespread benefits from the underlying technology of cryptocurrencies.

The 18 measures outlined in the proposal draw upon well-established safeguards from traditional financial markets, aiming to eliminate conflicts of interest between different aspects of crypto transactions.

IOSCO aims to finalise these standards by the end of the year and expects its 130 members worldwide, including regulatory bodies such as the U.S. Securities and Exchange Commission, Japan's Financial Services Agency, Britain's Financial Conduct Authority, and Germany's BaFin, to adopt them. This approach intends to harmonise regulations globally, eliminating fragmented oversight and preventing firms from exploiting regulatory disparities.

IOSCO is currently seeking public input on these regulations, following in the footsteps of the European Union, which recently finalised the world's first comprehensive set of rules for crypto. This development puts pressure on countries like Britain and the United States to establish their own norms.

In the coming months, IOSCO plans to issue recommendations for regulating decentralised finance, further demonstrating its commitment to addressing the evolving landscape of the crypto industry.