International Securities Regulator IOSCO Proposes Policy Recommendations for Crypto
The consultation period for the global standard-setter's first set of detailed recommendations for regulating crypto will close on July 31.
The International Organization of Securities Commissions (IOSCO) opened up its policy recommendations for crypto and digital asset markets for public comment on Tuesday.
The 18 policy recommendations cover a range of issues such as market abuse, conflict of interest, client asset protection, disclosures and risks associated with crypto. The proposed recommendations mainly address "widespread concerns regarding investor protection and market integrity" within crypto markets, a statement to the press said.
Last year, the international policy forum that groups securities regulators in around 130 countries established a Fintech Task Force (FTF) to develop IOSCO’s regulatory agenda for both fintech and crypto. The FTF, chaired by the Monetary Authority of Singapore, is made up of 27 of 33 board member jurisdictions.
One of two working groups attached to the FTF, run by the U.K.'s Financial Conduct Authority, was set to publish recommendations for crypto assets this year, while another run by the U.S. Securities and Exchange Commission (SEC) worked on decentralized finance (DeFi).
Global standard-setters have renewed their call for tougher crypto regulations following the collapse of stablecoin issuer Terra and crypto exchange FTX last year. The Financial Stability Board is set to publish recommendations for stablecoins later this year and coming global crypto rules will be based on a joint FSB and International Monetary Fund (IMF) synthesis paper.
International financial crimes watchdog FATF last week called on the Group of Seven (G-7) advanced economies to lead in implementing its recommended norms for preventing money laundering.
“As the G-7 Finance Ministers and Central Bank communiqué of 13 May has once again reminded us, the time has come to put an end to the regulatory uncertainty that characterizes crypto activities. Today’s consultation paper received unanimous support from the IOSCO Board and is the outcome of an intense period of regulatory risk analysis, information sharing and capacity building," Jean-Paul Servais, chairperson of IOSCO, said in a statement to the press.
Of the recommendations, the ones concerning conflict of interest and safety of client assets are the least surprising but may be most important, Servais said at a press briefing on Tuesday.
IOSCO recommends regulators who do not mandate division by activity to consider prohibiting crypto service providers "from combining certain functions in a single legal entity or group of affiliated entities," as companies often engage in a range of activities such as operating exchanges, engaging in proprietary trading in the same markets, and keeping custody of clients' assets.
During Tuesday's briefing, IOSCO officials pointed to alleged conflicts of interest and mismanagement of client assets by collapsed crypto enterprise FTX as examples for why these measures are crucial for protecting consumers around the world. The report also cites recent allegations made by the SEC against Beaxy and Bittrex for failing to register as securities exchanges, and the case of Ishan Wahi – recently sentenced to two years in jail for revealing details of upcoming Coinbase listings to his brother – as motivation for stronger rules.
In response to a question on whether releasing policy recommendations legitimizes crypto, Servais said IOSCO deals with financial regulation, whereas treating crypto as, for instance, gambling – something a group of U.K. lawmakers recently proposed – is beyond the regulator's scope.
The consultation period on the recommendations closes on July 31.
UPDATE (May 23, 08:37 UTC): Adds more detail and comments from the press briefing on the consultation throughout article.
UPDATE (May 23, 09:50 UTC): Adds references to Beaxy, Bittrex and Wahi cases.
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