Why Should Cryptocurrency Exchanges Self-Regulate?
Why is it important for crypto exchanges to self regulate? More on these ideas. Find the countries that promote self regulation
How Is Self-Regulation Effective?
As cryptocurrency garners infamous reputation with an ever-increasing list of hacks and scandals, at Bitcoin exchange regulation might offer a way out to clean up their act. As governments around the world grapple with understanding and accommodating crypto behavior, within existing legal frameworks, it will take time for the process.
On the other hand, CFTC commissioner Brian Quintez calls for cryptocurrency exchanges to self regulate. Even though the concept is not new, the establishment of the Natural Futures Association which is a self-regulation agency for the futures industry has helped spur industry growth.
What Does Self-Regulation Mean?
Self-regulation is the establishment of guidelines and a code of conduct for market participants operating businesses within the ecosystem within the context of cryptocurrencies. From knowing your customer to maintaining transparency to ensure security against hacks, the guidelines span a broad spectrum.
The International Organization of Securities Commissions (IOSCO), in a paper, defined a set of elements comprising self-regulation. They include transparency and accountability, contractual relationships and coordination and information sharing.
Typically overseeing self-regulation agencies are these regulatory government agencies and as an example, most of the rules are promulgated by NFA (the National Futures Association) and approved by the CFTC. NFA, on the other hand, has the authority to audit and regulate Futures Clearing Merchants.
What Do You Mean By Self-Regulatory Organization (SRO)?
With the power to create and enforce stand-alone industry and professional regulations and standards, a self-regulatory organization stands where there is a need for regulation. The priority to protect the investor by establishing rules, regulations, brings financial SROs set standards of procedures promoting ethics, equality, and professionalism.
Specific to the country they serve, there may also be self-regulatory organizations such as the Investment Industry Regulatory Organization of Canada (IIROC) and the Association of Mutual Funds in India (AMFI). With industries that create SROs comes the American Bar Association and the Institute of Nuclear Power Operations (INPO).
Is Self-Regulation Intended To Bring Order To The Crypto Wild West?
It is typically the task of government regulatory agencies to bring order to the unregulated financial ecosystem. self-regulation aids a government agency’s task it also ensures the development of a nascent crypto ecosystem that does not haphazardly take place.
Self-regulation agencies help establish customer trust as the best practices outlined in the guidelines are adhered to by member organizations. Driving down the costs, it also implements regulation through self-policing.
As Roy Keidar who is a special counsel with an Israeli law firm and doctoral candidate on blockchain regulation at the Sorbonne in Paris writes, “the emergence of regulatory compliance via the use of DLT and smart contracts represent a significant opportunity for financial institutions from a cost perspective beyond the constraints and legal burdens.”
The responses of cryptocurrency exchanges following recent hacks have resulted in self-regulation. As an example, the cryptocurrency exchanges in Japan have bolstered regulatory measures as related to security and following the recent Coincheck hack.
As it offered partial refunds, Coincheck customers were affected by the hack. Since then the South Korean government warned against overheated trading, digital currency exchanges, that are part of the Korean Blockchain Association and planning to implement strategies helping protect investors' assets and introduce greater transparency in the listing process.
Which Are The Countries That Have Implemented Self-Regulation?
As we watch a worldwide transition to self-regulation, most of the cryptocurrency exchanges, including Japan and South Korea comes as the first and third most traded cryptocurrency markets in the world and that which has pioneered self-regulation in cryptocurrency exchanges.
With 127 members and 35 crypto exchanges among them, the Japan Blockchain Association sets the standards while promoting the development of a robust business environment and a user protection system that of virtual currency and blockchain technology.
On the other hand, South Korea’s blockchain association comes with 25 members that have similar aspirations as also seven cryptocurrency exchanges in India that form the Blockchain and Cryptocurrency Committee after the finance department declared that cryptocurrencies are illegal tender.
Forming CryptoUK, the UK’s seven biggest crypto companies is a trade body with its own self-regulatory code of conduct. The commitment to segregate fiat customer money from company funds is the measure listed on the organization’s website and that ensures the customer funds are payable in case of hacks or crashes at the exchange.
The Bottom Line
Self-regulation offers a way out ensuring customers are not duped by fraudulent elements within the ecosystem until the time comes for governments around the world that can evolve a suitable regulatory response to the rise of cryptocurrencies and blockchain.