Global trade group proposes crypto regulation principles

Crypto trading should be regulated to similar standards as traditional financial markets, according to a new report from the World Federation of Exchanges (WFE).

The global trade group for securities exchanges and clearinghouses published a report proposing a set of regulatory principles for the crypto sector.

In particular, it recommends that crypto platforms be required to beef up their listing standards, segregate their market infrastructure functions to guard against conflicts of interest, operate orderly markets with controls to prevent misconduct and abusive trading, and adhere to best execution requirements.

It also recommends that platforms be required to have sufficient financial resources to withstand operational stress and that they face certain governance and management standards.

“The WFE recommends that governments and regulators require [crypto platforms] to meet the high standards that all market participants expect and deserve,” it said.

“Governments and regulators helped to shape the ethos of the current market infrastructure so that it operates in the trusted manner it currently does,” said Richard Metcalfe, head of regulatory affairs with the WFE, in a release. “The same logic must apply to crypto trading platforms, whether centralized or not, to prevent the significant risks and realities we have seen that can, and do, harm investor trust.”

Additionally, the group said crypto platforms should disclose their regulatory status and should not be able to call themselves exchanges until they’re meeting the standards of conventional regulated exchanges.

Applying these regulatory principles to the crypto sector will enable it to grow while protecting investors and ensuring fair and transparent markets, it said.

“The exchange industry continues to believe in the promise of crypto trading and digital assets and is working with all stakeholders to evolve market structure and standards to the level necessary to facilitate growth and trust in these markets,” said Nandini Sukumar, CEO of the WFE, in a release. “Observing the standards will not only safeguard markets, it will enable the sector to grow.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.