Recommending consistency: IOSCO finalises its policy recommendations for crypto

The International Organization of Securities Commissions has finalised its 18 policy recommendations for the regulation of crypto and digital assets. This follows its consultation earlier this year.

The Recommendations apply IOSCO’s standard for securities markets regulation to address key issues and risks identified in cryptoasset markets. They do not apply directly to cryptoasset service providers but IOSCO hopes that the Recommendations will encourage greater consistency in the way that cryptoasset markets and securities markets are regulated within IOSCO member jurisdictions. The Recommendations are premised on the underlying principle of “same activity, same risk, same regulation/regulatory outcome”. 

The Recommendations also consider the need for enhanced co-operation among regulators. IOSCO notes that investor protection and market integrity issues will continue without coordinated international regulatory action.

What do the Recommendations cover?

The 18 Recommendations cover six areas, consistent with IOSCO’s Objectives and Principles for Securities Regulation and relevant supporting IOSCO standards, recommendations, and good practices:

1. conflicts of interest arising from vertical integration of activities and functions;
2. market manipulation, insider trading and fraud;
3. cross-border risks and regulatory co-operation;
4. custody and client asset protection;
5. operational and technological risk; and
6. retail access, suitability, and distribution.

In developing the Recommendations, IOSCO focuses on the economic substance of cryptoassets rather than attempting to develop a one-size fits all prescriptive taxonomy. Regulators are also encouraged to analyse the extent to which:

• cryptoassets are, or behave like substitutes for, regulated financial instruments; and
• investors have substituted other financial investment activities with cryptoasset investment activities. 

DeFi Recommendations to follow

IOSCO published a consultation report on proposed policy recommendations for decentralised finance on 7 September 2023. This report will be finalised by the end of the year at which time IOSCO says that it will also publish an umbrella note explaining in more detail the interoperability between the two sets of recommendations.