It is time to end the regulatory arbitrage over crypto assets, the global regulatory watchdog has said as it unveiled its recommendations for the regulation of the sector.
The International Organisation of Securities Commissions, an association of global regulatory bodies, has today (May 23) outlined a 18-point plan for how jurisdictions should regulate crypto assets.
The guidance is focused on crypto-asset service providers, and covers the ‘life cycle’ of an asset, from their offering to trading to settlement, market surveillance and custody.
It also covers the marketing and distribution of crypto assets to retail investors.
Jean-Paul Servais, chairperson of the IOSCO, said the consultation paper marks a “turning point” in addressing the clear risks crypto poses to investor protection and the integrity of markets.
“The time has come to put an end to the risk of regulatory arbitrage,” Servais said, highlighting the difference in regulatory approaches between countries.
“This is the first time that such a globally consistent framework is proposed for crypto in order to protect the investor…it is important this is published at international level,” he said.
The consultation comes after a number of scandals in the crypto industry, including the “crypto winter”, a period of weakness in the value of crypto, and the collapse of crypto exchange FTX.
Matthew Long, director of payments and digital assets at the Financial Conduct Authority, said: “Recent global events have shown us very clearly why we need this work…we have to make this safe.”
Specific areas that the consultation will focus on include conflicts of interest, abusive behaviours, and consumer harm.
Long said the process has a “pacey agenda”, with the industry asked to give their feedback on the proposals by July 31, with a view to finalise the policy measures in the fourth quarter this year.
Individual jurisdictions are moving their crypto regulation on, with the EU finalising its own guidelines, and the UK also developing its own rules.
Cryptocurrency is not currently regulated by the FCA, though digital asset service providers that operate in the UK must go through the regulator’s anti-money-laundering review process.
Earlier this year, the FCA released a consultation on its proposed approach for regulating crypto technologies, which would bring centralised crypto exchanges into financial services regulation for the first time, as well as other core activities like custody and lending.
There are concerns that regulating crypto will lead to a ‘halo effect’, leasing consumers to erroneously believe that crypto trading is safe and protected.
Earlier this month, the Treasury committee called for the government to regulate consumer trading in unbacked crypto assets as gambling.
Referring to the cryptoasset community as a “wild west”, Harriett Baldwin, chair of the Treasury committee, said at the time: “With no intrinsic value, huge price volatility and no discernible social good, consumer trading of cryptocurrencies like Bitcoin more closely resembles gambling than a financial service, and should be regulated as such.”
sally.hickey@ft.com
