The World
Federation of Exchanges (WFE) has asked the International Organization of
Securities Commissions (IOSCO) to address the conflict of interest created by
centralized finance (CeFi) firms such as crypto exchanges that engage in
multiple businesses. The recommendation comes as IOSCO, a global body for
securities regulators, plans to finalize its recommendations for the regulation of the
global crypto industry by the fourth quarter of this year.
WFE, the
global industry association for operators of regulated exchanges and clearing
houses (CCPs), gave the recommendation in its response to IOSCO’s consultation for its policy guidance on the supervision of the global crypto industry. The consultation ended on July 31, 2023.
The association noted that while exchange groups in the
traditional finance (TradFi) industry engage in multiple businesses to
diversify their revenue streams, they have “robust conflict of interest management
procedures to ensure ethical and fair practices.”
“This [conflict of interest management] involves implementing policies and mechanisms that prevent any undue advantage
or bias among the businesses owned by the group,” WFE said in its response document. “Transparent governance
structures, independent oversight, disclosure requirements, and compliance
frameworks are some of the measures that have been proven to mitigate conflicts
of interest effectively.”
The
association’s request comes even as the US Securities and Exchange Commission
in its recent crackdown on exchanges in the United States, including Binance and Coinbase, have alleged that the crypto
firms are combining the functions of an exchange, brokerage and clearing
agency. The securities regulator has repeatedly argued that the services are
separated under US laws and require distinct registrations.
IOSCO
Addresses Multiple Issues
Meanwhile, Finance Magnates reported that IOSCO’s recent policy guidelines for the global crypto industry cover six key areas such
as market manipulation, insider trading and fraud as well as conflict of interest
arising from the ‘vertical integration’ of various activities and functions by
crypto firms.
The policy
also focuses on cross-border risks and regulatory cooperation, custody and
client asset protection, operational and technological risk,…
