The International Organization of Securities Commissions (“IOSCO”) recently published a consultation report (CR01/2023) (“Consultation”) on draft policy recommendations (“Recommendations”) to support greater regulatory and oversight consistency within the crypto and digital assets markets.

The Recommendations cover the following key areas:

• conflicts of interest arising from vertical integration of activities and functions;
• market manipulation, insider trading and fraud;
• cross-border risks and regulatory cooperation;
• custody and client asset protection;
• operational and technological risk; and
• retail access, suitability and distribution.

IOSCO noted that the Recommendations are principles-based and outcomes-focused. The Recommendations cover the main risks arising from various activities performed by cryptoasset service providers (“CASPs”), including offering, admission to trading, ongoing trading, settlement, market surveillance and custody, as well as marketing and distribution to retail investors.

The Recommendations intend to support greater consistency in relation to regulatory frameworks and oversight in IOSCO’s member jurisdictions, address concerns related to market integrity and investor protection arising from cryptoasset activities, and improve global standards of cryptoasset regulation.

The Recommendations also cover the need for enhanced cooperation between regulators. They aim to provide a critical benchmark for IOSCO members to cooperate, coordinate and respond to cross-border challenges in enforcement and supervision arising from global cryptoasset activities conducted by CASPs that offer their services into multiple jurisdictions.

While the Recommendations are not directly addressed to market participants, IOSCO encourages CASPs and all cryptoasset market participants to consider the expectations and outcomes in the Recommendations in the conduct of regulated and cross-border activities. 

It is notable that the Recommendations do not cover activities, products or services provided in respect of decentralised finance (“DeFi”). However, the Consultation flags that IOSCO intends to publish a separate consultation with proposed recommendations on DeFi in summer 2023.

We think that the Consultation shows the notable progress made by IOSCO in dealing with concerns in the rapidly evolving cryptoasset market such as investor safety and market stability. The Consultation provides valuable guidance on the regulatory framework of the cryptoasset markets and shows the cryptoasset industry preparing for regulatory change.

The Consultation closes on 31 July 2023. IOSCO expects to finalise the Recommendations in early Q4 2023. The Consultation is available here.