IOSCO drops final crypto sector recommendations

Global securities regulators published their final recommendations for regulating firms in the crypto markets — an initiative that aims to establish common standards for the fledgling sector, and create a more level playing field between traditional and crypto markets.

The International Organization of Securities Commissions (IOSCO) issued a report that sets out its recommendations, which are based on the principle that crypto markets should be held to the same basic standards as traditional financial markets, following the global policymakers’ mantra of “same activity, same risk, same regulatory outcome.”

The recommendations aim to apply IOSCO’s global standards for securities markets regulation to the cryptoasset markets, starting with asset creation and distribution through to listing and trading, settlement, custody, market surveillance, and marketing.

“One of IOSCO’s goals is to promote greater consistency with respect to how IOSCO members approach the regulation and oversight of cryptoasset activities, given the cross-border nature of the markets, the risks of regulatory arbitrage and the significant risk of harm to which retail investors continue to be exposed,” the group said in its report.

Specifically, the recommendations aim to address issues such as conflicts of interest; market manipulation, insider trading and fraud; asset custody; retail distribution; operational risk; and cross-border cooperation.

In the report, IOSCO said the recommendations are designed to “support greater consistency with respect to regulatory frameworks and oversight in IOSCO member jurisdictions, to address concerns related to market integrity and investor protection arising from cryptoasset activities.”

In addition to setting rules for dealing with crypto sector risks, the recommendations also highlight the need for enhanced cooperation among regulators.

“They aim to provide a critical benchmark for IOSCO members to cooperate, coordinate and respond to cross- border challenges in enforcement and supervision, including regulatory arbitrage concerns, that arise from global cryptoasset activities conducted by [crypto firms] that offer their services, often remotely, into multiple jurisdictions,” the report said.

It’s expected that regulators apply these principles locally, either by drafting new rules or applying existing requirements to the crypto sector.

Jean-Paul Servais, IOSCO chairman, called the report “the first and important step to ensure investors are protected and cryptoasset markets operate fairly, efficiently and transparently.”

The set of final recommendations is “central to the delivery of a coordinated global regulatory response to the significant investor protection and market integrity risks posed by centralized cryptoasset intermediaries,” IOSCO said in a release.

With the publication of the final recommendations, Servais said IOSCO will now turn its attention to supporting the consistent implementation of the recommendations across jurisdictions.

A separate set of proposed recommendations for the decentralized finance sector will be finalized by the end of the year, IOSCO said, and at that time it intends to provide guidance on integrating the two sets of proposals.