Members of the public can view the full report here and have until July 31 to send in comments and feedback by email.
The IOSCO in particular advised regulatory authorities to prohibit cryptocurrency corporations “from combining certain functions in a single legal entity or group of affiliated entities,” such as prohibiting cryptocurrency corporations from likewise running exchanges, trading corporations, and custody enterprises under the same legal entity.
The IOSCO is a worldwide policy forum made up of regulatory authorities that collectively oversee 95 percent of the world’s securities market across 130 jurisdictions. Last year, the organization established a Fintech Task Force (FTF) to develop its cryptocurrency policy recommendations.
The eighteen new recommendations cover 6 areas, including conflicts of interest stemming from the vertical integration of activities and functions, cross-border dangers and regulatory participation, likewise as a category for market manipulation, insider trading, and fraud.
“Regulation of cryptocurrency activities across jurisdictions is overdue,” Ernst and Young EMEIA lead shared with Decrypt. “A worldwide baseline of guardrails is a positive step forward, but it is likewise an ambitious undertaking and it remains to be seen just how effective it can be in practice.”
FTX Trading Ltd collapse informs policy-making
The IOSCO’s recommendations around conflicts of interest and vertical come in the wake of one of the industry’s largest collapses in the now-bankrupt cryptocurrency exchange FTX.
At its height, FTX Trading Ltd was the third largest cryptocurrency exchange behind Binance Crypto exchange and Coinbase.
It collapsed within a bank run after Binance CEO Changpeng Zhao announced his exchange would liquidate its position in FTT—FTX’s native token—in response to speculation that FTX Trading Ltd CEO and onetime regulators’ friend Sam Bankman-Fried was lobbying “against other industry players behind their backs.”
The bank run exposed a shortfall in liquidity because of the fact that FTX Trading Ltd had commingled customer funds and sent them to its sister company Alameda Research after the latter had impairment on several bad trades.