The chairman of the global securities regulator IOSCO said in an interview that the collapse of the FTX exchange has injected greater urgency into regulating the encryption industry, and targeting such “group” platforms will be the focus of 2023.

Instead of starting from scratch, Jean-Paul Servais said that regulating cryptocurrency platforms could borrow principles from other sectors that deal with conflicts of interest, such as credit rating agencies and market compilers.

Crypto assets like bitcoin have existed for years, but regulators have resisted stepping in to create rules.

But Servais told Reuters that the implosion of FTX, which has left some 1 million creditors facing losses totaling billions of dollars, would help change that.

“Even two or three years ago, the sense of urgency was not the same. There was some disagreement on whether cryptocurrency was a real problem at the international level, because some felt it was still not a substantive problem and a risk,” Servais said.

“Things are changing and because of the interconnectedness of different types of businesses, I think it’s important now that we can start discussions and that’s where we’re going.”

IOSCO, which coordinates the rules of the G20 countries and others, has developed principles for regulating stablecoins, but now the focus has shifted to trading platforms.

In mainstream finance, there is a functional separation between activities such as brokerage, trading, banking services and issuance, each with its own set of rules of conduct and safeguards.

“Is the case in the crypto market? I would say most of the time not,” Servais said.

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Servais said that crypto “groups” like FTX have emerged to perform multiple roles under a single roof, such as brokerage services, custody, proprietary trading, token issuance, which can create conflicts of interest.

“For investor protection reasons, there is a need to provide more clarity to these crypto markets through targeted guidance applying IOSCO’s principles to crypto assets,” Servais said.

“We intend to publish a consultation report on these matters in the first half of 2023,” he added.

Madrid-based IOSCO, the International Organization of Securities Commissions, is the umbrella body for market watchdogs including the U.S. Securities and Exchange Commission, Germany’s Bafin, Japan’s Financial Services Agency and the U.K.’s Financial Conduct Authority, all of which have pledged to apply the agency’s recommendations.

Servais, chairman of Belgium’s financial watchdog FSMA, said the EU’s Market for Cryptoassets, or MiCA, framework is an “interesting starting point” for developing global guidelines because it focuses on the regulation of crypto operators.

“I think the world is changing,” Servais said. “We know that there is some room for standards around regulating these kinds of cryptocurrency groups. It’s clearly necessary.”

© Thomson Reuters 2022

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