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IOSCO Crypto-Asset Recommendations

The International Organization of Securities Commissions (IOSCO) published a consultation report that provides recommendations for the regulation of crypto-asset markets.

IOSCO and Its Role in Financial Markets

The IOSCO is a leading international policy forum for securities regulators. Its primary role is to promote high standards of regulation in order to maintain fair, efficient, and transparent markets. IOSCO’s membership regulates more than 95% of the world’s securities markets, making it a significant authority in the financial world.

Rising Tide of Crypto-Assets

In recent years, the exposure of retail investors to crypto-assets has surged. This growth has brought with it increased losses due to financial crime, fraud, and money laundering in the crypto-asset market. Many crypto-asset activities and markets currently operate outside of applicable regulatory frameworks or are entirely unregulated. This situation has led to a pressing need for comprehensive regulation to protect investors and maintain market integrity.

IOSCO’s Recommendations

The IOSCO’s report aims to address these issues by providing a set of recommendations for regulators and participants in the crypto-asset markets. These recommendations are not directly addressed to market participants but are strongly encouraged to be considered by Crypto-Asset Service Providers (CASPs) and all participants in crypto-asset markets.

The recommendations are aimed at providing the path towards a safer and more regulated crypto-asset market.

Key recommendations are:

Common Standards of Regulatory Outcomes

The first recommendation suggests applying relevant existing IOSCO objectives, principles, standards, recommendations, and good practices to crypto-asset activities within their jurisdictions. This foundation ensures that the regulatory approach is grounded in tried and tested principles.

Enhancing Transparency and Governance

The next set of recommendations focus on improving transparency and governance within organizations dealing with crypto-assets. These recommendations are like the lighthouse’s tower, providing the necessary structure for the regulatory approach. They include enhancing order handling procedures, improving procedures for the admission of crypto-assets to trading platforms, and enhancing market surveillance mechanisms.

Managing Conflicts and Protecting Investors

The next recommendations are aimed at protecting investors and maintaining market integrity. These include managing conflicts of interest in primary market activities, addressing issues of fraud and market abuse, and improving the management of material non-public information in the crypto-asset market.

Enhancing Cross-Border Regulatory Cooperation

The final recommendation is to enhance cross-border regulatory cooperation. In the interconnected world of crypto-assets, cross-border cooperation is crucial for effective regulation.

Path Forward

IOSCO’s recommendations seek to provide a framework for the regulation of crypto-asset markets. However, implementing these recommendations will require concerted effort from regulators, market participants, and CASPs.

It is clear that there is nothing revolutionary within the proposals. Many of the recommendations are covered by existing initiatives such as the Crypto Asset Travel Rule.

Furthermore, regulators globally would have to conclude on some basic issues.

As we reported last week, the UK Treasury Committee proposed retail crypto trading be deemed gambling. Therefore, such activities would fall within the regulatory scope of the Gambling Commission. It is highly unlikely such recommendations would be followed but serves to highlight just how fragmented thoughts on the sector and related activates are.

A critic might highlight the IOSCO’s relative silence on the topic, limited recommendations, and lack of terminology cohesive with industry standards, such as using Crypto-Asset Service Providers, rather than Virtual Asset Service Providers, the preferred term by most regulators, industry bodies and others.

Perhaps late and lacking any detail, but we are thankful that IOSCO’s recommendations align with the proper treatment of the sectors relevant actives.

As the crypto-asset market continues to evolve, the regulatory approach requires a significantly more cohesive and proactive effort.

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