Crypto-asset trading platforms urged to embrace regulation, says World Federation of Exchanges


29th September 2023 – (London) The World Federation of Exchanges (WFE) has recognised the potential of crypto-asset trading platforms (CTPs) in the real economy and wider society. In a paper published on 28th September, the WFE made candid observations about CTPs and put forward recommendations for regulators.

According to the WFE, CTPs should embrace a certain level of regulation to enhance the attractiveness of their markets. The organisation proposed six principles for regulating CTPs, with the first principle focusing on separating functions to prevent trading against customers. This issue has been frequently raised by Gary Gensler, the chairman of the United States Securities and Exchange Commission. The WFE emphasised that until CTPs meet these standards, they should not be referred to as exchanges.

The WFE expressed concerns about the integration of distributed ledger technology (DLT) into traditional financial (TradFi) exchanges it represents. It encouraged regulators to consider the mutual benefits of this integration. Additionally, the WFE highlighted the risks of discouraging regulated institutions from offering services in crypto assets, as it may drive the business towards inexperienced new entrants operating in the shadows.

Regarding decentralized finance (DeFi), the WFE noted that while it operates differently from traditional finance (TradFi) and centralised finance (CeFi), the differences are not as significant as they may appear. The WFE argued that platforms facilitating buyer-seller interactions inherently possess central entities. As an example, the WFE mentioned the Ethereum Merge, a transition within the Ethereum network, which was primarily driven by the centralised team at the Ethereum Foundation. The WFE suggested that regulation could be targeted at decentralized applications (DApps) rather than the protocol itself.

The WFE commended the Financial Action Task Force’s efforts to apply Know Your Customer regulations, commonly known as the travel rule, to the crypto industry. Additionally, it endorsed the International Organisation of Securities Commissions (IOSCO) Principles for Secondary and Other Markets to elevate standards in the crypto markets.