Fri, Mar 1, 2024

The official Financial Regulation Journal of SAIFM

IOSCO establishes global approach to address risks in Decentralised Finance

IOSCO, the global standard setter for the securities markets, has on 7 September 2023 issued for consultation nine policy recommendations to address market integrity and investor protection concerns arising from Decentralised Finance (DeFi).

The Recommendations cover six key areas, consistent with the IOSCO Objectives and Principles for Securities Regulation and relevant supporting IOSCO standards, recommendations, and good practices: (1) Understanding DeFi Arrangements and Structures, (2) Achieving Common Standards of Regulatory Outcomes, (3) Identification and Management of Key Risks (4) Clear, Accurate and Comprehensive Disclosures (5) Enforcement of Applicable Laws, (6) Cross-Border Cooperation.

Jean-Paul Servais, IOSCO Board Chair said: “By supporting greater consistency of regulatory frameworks and oversight across member jurisdictions, the DeFi recommendations complement the Crypto and Digital Assets Recommendations published in May 2023. Once finalised, the two sets of Recommendations will provide a first clear, interoperable, and globally consistent policy framework for crypto and digital assets, including DeFi. This report marks a significant step forward in achieving regulatory outcomes for investor protection and market integrity that are the same as, or consistent with, those required in traditional financial markets across IOSCO’s 130 member jurisdictions.

Tuang Lee Lim, Chair of IOSCO’s Board-Level Fintech Task Force said: “There is a common misconception that DeFi is truly decentralised and governed by autonomous code or smart contracts. In reality, regardless of the operating model of the DeFi arrangement, “responsible persons” can be identified. Our recommendations are therefore predicated on the need to identify these persons, whether legal or natural, who should bear responsibility for upholding investor protection and market integrity.

IOSCO has opened a public consultation and aims to finalise its DeFi recommendations around the end of 2023, in accordance with its Crypto-Asset Roadmap of July 2022, and in conjunction with its CDA recommendations.

Comments on the consultation paper should be sent to DeFiconsultation@iosco.org on or before 19 October 2023.

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