“Using the term exchange can be misleading if you’re not doing these things,” said Richard Metcalfe, head of regulatory affairs at the World Federation of Exchanges (WFE), as he outlined six recommendations aimed at regulators and crypto trading platforms.
The WFE released these guidelines earlier this week, which include:
1. Segregation of market infrastructure functions within a Crypto Trading Platform (CTP), particularly limiting their trading activities that could conflict with customer interests.
2. Establishment of orderly markets by implementing systems and controls to mitigate broader risks, such as abusive trading practices, to maintain the integrity of price formation.
3. Ensuring sufficient financial resources to manage expected operational stress events.
4. Facilitating compliance with best execution requirements.
5. Enhancing the robustness of listing standards.
6. Implementing appropriate governance and management standards.
Metcalfe expressed that their observation of the cryptocurrency market highlighted a prevalent sense of suspicion towards its operations. He noted, “Many participants in crypto may incorrectly assume that the safeguards present in regulated markets, such as those for trading shares, are also in place in the crypto space. It’s crucial to understand that these protections may not exist.”
The WFE had previously published cryptocurrency research that indicated unregulated crypto trading platforms often engage in activities that would either be prohibited or heavily regulated in conventional public markets. The second portion of this research is still pending publication.
Additionally, Metcalfe remarked that many financial centers have been exploring how to position themselves within the evolving crypto landscape, balancing the potential benefits of market development and technological advancement against associated risks. He observed a shift in approach, stating, “It seems that the pendulum is rightly swinging back” towards more cautious regulation.
He emphasized that these recommendations stem from a public policy perspective aimed at safeguarding investor protection and maintaining market integrity. Importantly, he clarified that the WFE’s stance is not anti-crypto. “Our members recognize that this direction is significant for many markets, and there’s valuable work to be done,” he said.
The WFE hopes its recommendations will inform regulators worldwide and plans to engage with the International Organization of Securities Commissions (IOSCO) regarding consultations on decentralized finance (DeFi) and digital assets.