The global markets watchdog has urged the UK to regulate cryptocurrencies in the same way as traditional assets such as stocks and bonds, defying calls by MPs last week for the risk investments to be considered a form of gambling.
The International Organization of Securities Commissions (Iosco) – an umbrella group of regulators from 130 jurisdictions – made the recommendation as part of the first set of international standards for crypto regulation.
Iosco said its members, which include the UK’s Financial Conduct Authority (FCA) and the US’s Securities and Exchange Commission, must protect investors and ensure “market integrity” in ways that “equally, or consistent with, the requirements of traditional financial markets”.
That includes requiring trading platforms to publicly disclose how they vet crypto assets before allowing them to be traded, clearly explain how they store and protect clients’ crypto assets, and ensure that they are separated from the company’s own assets that may be used for proprietary trading.
The global body, which has drawn lessons from a series of scandals including the collapse of the FTX cryptocurrency exchange in November, said it would help create “a level playing field between crypto assets and traditional financial markets”.
Iosco also said that global standards are important for avoiding regulatory arbitrage – a practice where businesses take advantage of loopholes in different national regulations.
However, the body’s recommendations are contrary to those put forward by British MPs in the Treasury select committee, who said that cryptocurrency trading should be regulated as a form of gambling. The committee expressed concerns that trading in crypto assets could be addictive and that investors betting on the price of unbacked assets would lose life-changing amounts of money.
MPs also warned that treating crypto like a traditional financial asset and regulating it through the FCA risks creating a “halo effect” that could lead consumers to believe that the industry “safer than this” or that they are protected from financial loss, if they are not profitable.
Matthew Long, the FCA’s director of digital assets and a member of Iosco’s crypto taskforce, said he recognized the Treasury committee’s concerns, but international coordination was key to addressing the many related risks. .
“I recognize the risks … I recognize the issues in the market, and we’re trying to do something about it,” Long said. “But what we are saying is that we need a global solution to that, because crypto is a global phenomenon.”
The final decision on how to regulate cryptocurrencies in the UK rests with the government. It is possible to place that responsibility on the FCA, which currently ensures that companies comply with money laundering rules, and will soon be tasked with monitoring ads. However, the FCA is otherwise limited in its powers to crack down on the crypto industry.
Iosco’s recommendations, which are now out for consultation, are expected to be finalized by the end of the year.
The Treasury committee declined to comment.