In a recent interview with a leading financial news outlet, Richard Metcalfe, the Head of Regulatory Affairs at the World Federation of Exchanges (WFE), outlined six critical recommendations aimed at regulators and cryptocurrency trading platforms. These recommendations come as a response to the growing concerns surrounding unregulated crypto trading. (source: finextra)
The WFE unveiled these recommendations earlier this week, emphasizing the need to:
- Segregate Market Infrastructure Functions: To avoid potential conflicts of interest, cryptocurrency trading platforms (CTPs) should limit trading on their own book or in ways that could conflict with their customers.
- Maintain Orderly Markets: Robust systems and controls are essential to mitigate broader risks, such as abusive trading, and protect the integrity of price formation.
- Ensure Sufficient Financial Resources: CTPs should have adequate financial reserves to handle expected operational stress events.
- Facilitate Best Execution Compliance: Compliance with best execution requirements should be a priority to ensure fairness and transparency.
- Enhance Listing Standards: CTPs should establish more stringent listing standards to enhance market robustness and protect investors.
- Enforce Appropriate Governance and Management Requirements: Governance and management structures should be established to maintain accountability and oversight.
Metcalfe explained that the WFE has closely monitored the cryptocurrency market, and a prevalent issue has been the misconception among participants that the same regulatory safeguards present in traditional financial markets are automatically applied to crypto trading. He emphasized the importance of addressing these gaps, stating, “They might take for granted the sort of things that you would get in that predefined environment but they wouldn’t necessarily be in place.”
As the crypto industry continues to evolve, the WFE’s recommendations serve as a crucial step towards enhancing transparency, security, and accountability within the sector.
The WFE published cryptocurrency research earlier this month which found that the risks that unregulated crypto-trading platforms bring are compounded by the fact that they frequently carry out further activities that would not be permitted, or would be closely regulated, in mainstream public markets. The second half of this research has not yet been published.
Metcalfe also pointed out that “a lot of individual financial centres were perhaps trying to work out how to position themselves and how restrictive to be because there was a potential upside in terms of developing an interesting new strand of markets, developing trading, developing activity, and the related technological development.”
He stated: “There was a temptation for individual financial centres to let this run and see how it develops with some obvious risks that would go with that. The pendulum seems to be, we think rightly, swinging back.”
Metcalfe argued that their recommendations are those that from a public policy perspective should be kept in mind for investor protection and market integrity.
However, Metcalfe emphasised that “none of this is in the spirit of being opposed to crypto, quite the contrary, as seen with the previous paper, our members are looking at it and thinking this is the direction a large part of the world seems to be headed and there’s very interesting work to be done.”
The WFE’s hope is that their recommendations will be taken into consideration by regulators across the globe, and Metcalfe further added that they will be responding to the International Organization of Securities Commissions (IOSCO) DeFi and digital assets consultations.
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