The International Organization of Securities Commissions (IOSCO) has taken a significant step towards addressing market integrity and investor protection issues in the rapidly evolving crypto market. In a recent Consultation Report, IOSCO outlined its policy recommendations to help establish compliant markets for trading digital assets.
Crypto Braces For Regulatory Overhaul
The Crypto and Digital Assets Recommendations (CDA Recommendations) are based on IOSCO’s established approach to securities regulation, which prioritizes investor protection and market integrity. The recommendations are not binding, but they provide guidance on best practices for market regulation that could help increase investor confidence and attract more institutional investment into the crypto sector.
The recommendations cover six key areas consistent with IOSCO standards: conflicts of interest arising from the 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.
Acknowledging the definitional and interpretive jurisdictional differences, IOSCO has developed a functional, economical approach to mitigate against the risks rather than attempting to develop a one-size-fits-all prescriptive taxonomy.
The recommendations, addressed to all regulators, set out an overarching principle and supporting guidance and call on all IOSCO members to apply or adapt these guiding principles consistently and outcome-oriented.
According to the report, the regulatory frameworks (existing or new) should seek to achieve regulatory outcomes for investor protection and market integrity that are the same as, or consistent with, those required in traditional financial markets to facilitate a level-playing field between crypto-assets and traditional financial markets and help reduce the risk of regulatory arbitrage.
UK Treasury Committee Calls Cryptocurrency Trading To Be Classified As GamblingThe IOSCO has recommended that cryptocurrencies be treated similarly to traditional financial assets, in contrast to the recent suggestion by the UK Parliament’s Treasury committee that cryptocurrency trading be regulated as a form of gambling rather than a financial service.
The Treasury committee’s recommendation comes after a fresh inquiry into the cryptocurrency industry, which found that current regulations are inadequate and that investors are not sufficiently protected. The committee suggested that cryptocurrency trading should be brought under the remit of the Gambling Commission to provide greater protection for consumers.
However, the IOSCO recommendation takes a different approach, calling for cryptocurrencies to be treated similarly to traditional financial assets to facilitate a level-playing field between crypto-assets and traditional financial markets and to help reduce the risk of regulatory arbitrage.
The crypto-asset industry has been grappling with regulatory uncertainty and a lack of clear guidelines, and the IOSCO recommendations are a welcome development for the industry. By providing a framework for compliant markets, IOSCO has taken a significant step towards increasing transparency and reducing the risks associated with crypto-asset trading.
However, it is important to note that the IOSCO recommendations are not binding, and individual jurisdictions must adopt them to have an impact. The industry is moving towards a more regulated and transparent future, and how individual jurisdictions will respond to the IOSCO recommendations remains to be seen.
Featured image from iStock, chart from TradingView.com