International Organization of Securities Commissions Publishes Recommendations for Crypto and Digital Assets Markets

Chloe Barrowman, Thomas Donegan
Shearman & Sterling LLP
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Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Crypto and Digital Asset Markets on November 16, 2023. The 18 recommendations are intended to promote consistency of regulatory frameworks for cryptoasset service providers. The recommendations apply to both cryptoassets and stablecoins, although regulators are encouraged to consider any particular issues posed by stablecoin arrangements when applying the recommendations.

The recommendations are spread across six areas:
  • Conflicts of interest and governance—regulators should require CASPs to manage conflicts of interest effectively (e.g., where CASPs engage in multiple activities across the financial sector) and to disclose each of their activities to their clients and regulators.
  • Market manipulation— regulators should require CASPs to handle client orders fairly. CASPs that operate markets should provide pre- and post-trade disclosures equivalent to those made in traditional financial markets. Regulators should require CASPs to maintain and disclose their standards for listing and removing cryptoassets on their markets and, in the case of stablecoins, should consider requiring additional disclosures such as the terms of the stablecoin and risks related to it. Regulators should take action against fraud and market abuse where it occurs in cryptoasset markets and should require CASPs to establish systems to manage material non-public information in the market.
  • Custody and client asset protection—regulators should apply IOSCO’s existing recommendations on custody of client assets to CASPs and should require CASPs to place client assets in trust or otherwise keep them segregated from proprietary assets. CASPs’ custody arrangements should be disclosed including, in the case of stablecoins, how reserve assets are held by issuers. Policies should be established by CASPs for regular reconciliation of client assets and mitigation of the risk of loss or theft.
  • Cross-border risks and regulatory cooperation—regulators should share information and cooperate with supervisory authorities in other jurisdictions on the supervision of CASPs.
  • Operational and technological risk—regulators should apply IOSCO’s existing recommendations with respect to managing operational and technological risk and should require CASPs to disclose sources of risk and establish appropriate risk management frameworks.
  • Retail distribution—regulators should apply IOSCO’s existing recommendations on dealing with retail clients and should require CASPs to adopt appropriate systems for onboarding new clients and making appropriate disclosures in financial promotions and marketing materials.

IOSCO has also published a series of recommendations for Decentralized Finance.
 

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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