The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has responded to the UK’s Financial Conduct Authority (FCA) on its Guidance on Cryptoassets.
In its response, the WFE highlights the importance of distinguishing between so-called cryptoasset ‘exchanges’ and the regulated, secure and lit markets that real exchanges provide. The WFE cautions that careless usage of the label ‘exchange’ may give investors a false sense of security, leading them to believe such platforms meet the regulatory standards of real exchanges that are regulated and offer transparent public markets. In describing a platform as an exchange, they should demonstrate that they meet appropriate standards. If the term ‘exchanges’ is going to be used in relation to cryptoasset platforms, the WFE urges the FCA to enforce standard exchange regulations to ensure cryptoasset platforms are compliant with the rules adhered to by exchanges.
The WFE also believes that, particularly with consumer protection and market integrity in mind, cryptoasset platforms and their users would benefit from greater clarity as regards regulatory obligations e.g. in relation to registration, licensing, and investor disclosure.
With regards to the cryptoassets that platforms make available for trading, the WFE’s response can be summarised as follows:
Regulators are concerned that, if the cryptoasset environment continues to grow unrestrained, and without clear regulatory guidance, it could conceivably pose a risk to financial stability globally. Accordingly, the WFE believes that any regional debate should inform the international policy agenda, to ensure regulatory coherence across jurisdictions.
The WFE welcomes the FCA’s definition and categorisation of cryptoassets into three main token types - exchange, security and utility tokens - and, in general, agrees with its regulatory assessment. A global approach to coherent regulation of the growing crypto-market requires standardised labelling of assets in circulation.
While recognising the potential for tokens to be used to facilitate regulated payments, the WFE believes the market requires more time to mature and develop. In addition, due to the volatility associated with exchange tokens, the WFE believes that coins considered e-money (stablecoins) would be better suited to facilitate regulated payments than other exchange tokens.
Nandini Sukumar, Chief Executive Officer, WFE said: “An exchange has specific characteristics. Market integrity, investor protection and accountability to regulators and investors are the DNA of exchanges. Regulated markets across the world are seeking to offer trading of cryptoassets for those who want to invest in them, and are seeking to do so in a market structure that maximises public good whilst offering innovative products. The WFE welcomes and supports the FCA’s efforts to create guidance on cryptoassets for the industry, and hopes the consultation will inform co-ordinated global efforts by international standard setters. We also encourage policy makers to provide further clarification with regards to the distinction between unregulated crypto platforms and traditional exchanges as part of their financial literacy efforts that better inform consumers about risk.”