IOSCO proposes global crypto regulation to end uncertainty
“Crypto-asset service providers need to address unacceptable conflicts of interest and take far more seriously the right of clients to have their monies and assets carefully minded and accounted for. It is time for Regulators to work together across borders and various jurisdictions to ensure that investor protection and market integrity are upheld in crypto-asset markets.”
The International Organization of Securities Commissions (IOSCO) has issued detailed recommendations to jurisdictions across the globe as to how to regulate crypto-assets in a major initiative designed to improve global standards of regulation of crypto-assets.
The association of organizations that regulate the world’s securities and futures markets, which intends to be the global standard setter for securities markets, has set out how clients should be protected and how crypto trading should meet the standards that apply in public markets.
IOSCO suggested 18 measures to cover conflicts of interest, market manipulation, cross-border regulatory cooperation, custody of cryptoassets, operational risks, and treatment of retail customers.
A turning point in addressing risks to investor protection and market integrity
Jean-Paul Servais, Chairperson of IOSCO, said: “As the G7 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 characterises 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. As such, it will mark a turning point in addressing the very clear and proximate risks to investor protection and market integrity risks.
LIM Tuang Lee, Chairperson of the IOSCO Board-Level Fintech Task Force, said: “The Recommendations in IOSCO’s Consultation Report set expectations and guardrails to regulate and supervise crypto-asset markets, which are inherently cross-border in nature. Crypto-asset service providers need to address unacceptable conflicts of interest and take far more seriously the right of clients to have their monies and assets carefully minded and accounted for. It is time for Regulators to work together across borders and various jurisdictions to ensure that investor protection and market integrity are upheld in crypto-asset markets.”
IOSCO represents 130 members around the world regulating more than 95% of the world’s securities markets, which allows the organization to deliver an effective and globally consistent set of policy recommendations.
“The strong support of the IOSCO Board will ensure the timely implementation of the recommendations by all IOSCO members to limit the risk of regulatory arbitrage. Strengthened cooperation between our members while supervising these markets through a global framework will contribute to protecting investors better and to credible deterrence of non-compliant actors”, Tuang Lee added.
The policy recommendations are open to public consultation and will be finalized by the end of the year. Once that happens, IOSCO expects that jurisdictions will review their current regulatory frameworks to ensure that they comply with the standards and fix any gaps promptly.
EY, ETC Group, and ARK36 comments on IOSCO proposal for crypto regulation
Ernst & Young has come forward to comment on this milestone for the digital asset space. Chris Woolard, EMEIA Financial Services Regulation Leader and Chair of the Global Financial Services Regulatory Network at EY, said: “Regulation of crypto activities across jurisdictions is overdue. A global baseline of guardrails is a positive step forward, but it is also an ambitious undertaking and it remains to be seen just how effective it can be in practice.
“The IOSCO’s proposed recommendations for the regulation of crypto assets across the world begins an essential conversation in bringing markets together, and will create a baseline for cross-border standards that can be built upon.”
Two leading crypto companies, ETC Group and ARK36, have also provided quotes regarding IOSCO’s unveiling of the first global plans to regulate crypto.
Bradley Duke, co-CEO at ETC Group, said: “At ETC Group we welcome any well considered regulation or Digital Assets guidance that increases investor protections as this helps to bring confidence and stability to this nascent sector. The IOSCO global approach is definitely a step in the right direction.”
Mikkel Morch, Chairman and Non-Executive Director at ARK36, added: “In a significant move towards strengthening the regulation of the cryptocurrency market, the International Organization of Securities Commissions (IOSCO) unveiled the first global approach to regulating cryptoassets and digital markets. This initiative comes in response to the collapse of the FTX exchange last year, which raised concerns about consumer protection and highlighted the need for a coordinated regulatory framework. Until now, the cryptocurrency industry has largely operated with limited oversight, primarily focusing on anti-money laundering checks. However, with different jurisdictions adopting their own rules, the lack of harmonisation has created a fragmented regulatory landscape. The proposed global standards aim to address this issue and provide a comprehensive framework that will enhance investor protection and market integrity.
“The bankruptcy proceedings initiated by FTX in the United States last November triggered global regulators’ intervention due to a liquidity crisis. These events served as a wake-up call for the industry and highlighted the urgency of establishing a coordinated global approach to cryptocurrency regulation. The recommendations put forth by IOSCO represent a significant turning point in the industry and could indeed mark a step towards mitigating the risks associated with investor protection and market integrity. The proposed measures cover a wide range of areas, including conflict of interest, market manipulation, cross-border regulatory cooperation, custody of cryptoassets, operational risks, and the treatment of retail customers.
“By applying long-established safeguards from mainstream markets, the proposed standards aim to eliminate conflicts of interest between different parts of a crypto transaction. IOSCO plans to finalize these standards by the end of the year, urging its 130 members worldwide to swiftly integrate them into their rulebooks to address existing regulatory gaps. IOSCO, an umbrella group comprising regulators such as the U.S. Securities and Exchange Commission, Japan’s Financial Services Agency, Britain’s Financial Conduct Authority, and Germany’s BaFin, is actively seeking public opinion on the proposed regulations. This inclusive approach ensures that various stakeholders, including investors and industry experts, have the opportunity to contribute their insights and expertise.
“This move by IOSCO follows the European Union’s recent implementation of the world’s first comprehensive set of rules for cryptocurrencies. Consequently, there is mounting pressure on other major economies, including the United States and the United Kingdom, to develop their own regulatory frameworks to keep pace with global standards. As the cryptocurrency market continues to grow in size and influence, establishing a robust global regulatory framework is essential to safeguard investors’ interests and ensure the long-term stability and integrity of the market. While the proposed standards hold the promise of enhancing investor protection, it is important to strike the right balance between regulation and innovation to foster continued growth and development in this dynamic industry.”
