The International Organization of Securities Commissions (IOSCO) released a set of crypto-related regulatory recommendations

The International Organization of Securities Commissions (IOSCO), the leading international policy forum for securities regulators, has taken steps to help policymakers effectively regulate cryptocurrencies. On 23 May, IOSCO proposed 18 crypto-policy recommendations in a recent consultation report.

The recommendations were formulated by the IOSCO Board’s Fintech Task Force (FTF), following the guidelines outlined in IOSCO’s CryptoAsset Roadmap released in June 2022 and are ‘principles-based’ and ‘outcomes-focused,’ targeting digital asset exchanges and other intermediaries. About the consultation, members of the public, including crypto-asset market participants, academics, technology experts, data providers, any other interested party, can view the full report here and have until 31 July to send in comments and feedback by email. The comment letter must state that it is a “public comment on
Advisory report on policy recommendations for crypto and digital asset markets. The recommendations are expected to be finalised by late 2023.

The recommendations cover six key areas and are aimed at the activities performed by crypto-asset service providers (CASPs), such as conflicts of interest arising from the vertical integration of activities and functions, market manipulation, insider trading and fraud; cross-border risks and regulatory cooperation, cross-border risks and regulatory cooperation, custody and client asset protection, operational and technological risk, as well as retail access, suitability and distribution.

The consultation report, and the 18 Recommendations contained within, are structured thematically into 9 chapters, including the overarching Recommendation Addressed to All Regulators, the recommendations on Governance and Disclosure of Conflicts, the recommendations in Relation to the Listing of Crypto-Assets and Certain Primary Market Activities, the recommendations to Address Abusive Behaviors, the recommendation on Cross-Border Cooperation, the recommendations on Custody of Client Monies and Assets, and the recommendation for Retail Distribution.

In the two first chapters, IOSCO recommends first that the regulatory frameworks (current or new) should aim to achieve investor protection and market integrity outcomes similar to traditional financial markets, promoting a level-playing field and reducing regulatory arbitrage risks. Regulators are then advised to assess the suitability and effectiveness of their regulatory framework by examining two key aspects: (1) whether crypto assets or alternative operations are comparable to regulated financial instruments and (2) to what extent investors have replaced traditional financial instrument investments with crypto asset investments. This aims to provide insight into the evolving landscape of financial activities and the potential impact of crypto assets on traditional markets. Next, in the second chapter, IOSCO recommendations and guidance aimed at addressing risks associated with vertically integrated crypto-asset trading platform (CASP) business models are presented. Moreover, recommendation related to the need for effective governance and organisational measures to address conflicts of interest arising from vertical integration is also presented. And this recommendation suggests potential actions such as legal disaggregation and separate registration to mitigate these issues.

In the other chapters, recommendations in turn address mainly the inherent conflicts of interest in which CASP may reserve customer orders in favor of its own or related party transactions, a sets out on transparency in business information disclosure to promote price discovery and competition, adoption and substantive disclosure, as well as procedural listing and delisting standards pertaining to crypto assets, the management of conflicts around crypto-assets by crypto-asset issuers in which CASP has a significant interest, establishment of a fundamental requirement that robust systems and controls must be in place to detect and oversee manipulative market practices, as well as to safeguard against the unauthorised disclosure of confidential insider information, implementation of best practices in international cooperation for the purpose to facilitate effective supervision and enforcement measures in the crypto-asset trading domain, controls that should be integrated into regulatory frameworks aim to ensure the safe and secure custody of Client Monies and Assets held by CASPs while preventing any inappropriate commingling of assets and potential abuses, guidance to tackle the wide range of operational risks that can emerge from inadequate controls at CASPs in conjunction with risks associated with distributed ledger technology (DLT) and smart contracts, the importance of implementing appropriate measures when promoting crypto-assets to retail investors to enhancing investor protection and promoting responsible practices in their interactions with retail clients.