The International Organization of Securities Commissions (IOSCO) has released the final report of its eighteen policy recommendations for digital assets, aimed at achieving uniformity and robust supervision.
IOSCO is a global cooperative of securities regulators whose mission is to maintain fair and efficient markets. It was founded in 1983 and its members regulate more than 95% of the world’s securities markets in more than 130 jurisdictions.
The final “principles-based” and “outcomes-focused” guidelines aim to align IOSCO member states’ regulatory frameworks, addressing pressing concerns over market integrity and investor protection in digital asset activities.
Global need for consistent regulatory frameworks
At the heart of IOSCO’s recommendations is the pursuit of greater consistency in regulating digital asset activities across borders. This approach reflects the US Securities and Exchange Commission’s stated principles of “same activities, same risks, same regulatory/regulatory outcomes” and seeks to minimize regulatory arbitrage and protect retail investors exposed to significant risks in the crypto markets.
Drawing parallels with the regulation of traditional financial markets, IOSCO emphasizes the need for adaptable regulatory frameworks that are yet consistent in the treatment of different crypto asset activities, including those involving stablecoins.
The comprehensive recommendations cover critical areas including conflicts of interest, market manipulation, cross-border risks, asset custody and protection, operational risks and retail distribution. Each area addresses specific aspects of digital asset transactions, from governance and conflict disclosure in vertically integrated CASP business models to addressing market abuses and improving cross-border cooperation for effective supervision. Particular emphasis is placed on protecting customer money and assets, managing operational and technological risks and ensuring appropriate retail distribution practices.
Improving market integrity and investor protection
IOSCO’s guidelines respond to the “fragmented” nature and “lack of transparency” of the crypto market, which it attributes to significant investor losses and market manipulations. By setting clear expectations on controlling and monitoring manipulative practices and preventing insider trading, these recommendations are intended to strengthen market integrity and protect investors from unnecessary harm.
IOSCO’s recommendations recognize the varied regulations in different jurisdictions and are designed for flexibility in implementation. They encourage regulators to evaluate the applicability of their frameworks to digital assets and consider specific requirements to address the identified risks and harm to investors.
Recognizing the unique challenges of specific digital assets such as stablecoins, IOSCO is expanding its recommendations to cover these assets, with additional guidance on disclosures and the custody of reserves. This inclusion highlights the growing importance of stablecoins in the crypto market and the need for regulations that address their specific risks and applications.
IOSCO’s 18 recommendations for digital assets.
- Overarching recommendation addressed to all regulators: Common standards for regulatory outcomes.
- Organizational governance: Addressing conflicts of interest in vertically integrated CASP business models.
- Disclosure of role, capacity and trade conflicts: Require CASPs to accurately disclose each role and capacity in which they act.
- Order handling: Ensure that CASPs handle customer orders fairly and equitably.
- Trade information: Transparency requirements for CASPs acting as market operators or trading intermediaries.
- Admission to trade: Establishing standards for listing and delisting crypto assets on CASP platforms.
- Managing conflicts in primary markets: Addressing conflicts of interest in primary crypto asset markets.
- Fraud and market abuse: Systems and controls to identify and monitor manipulative market practices.
- Market surveillance: Effective market surveillance systems to prevent market manipulation.
- Management of material non-public information: Preventing insider trading on crypto markets.
- Improved regulatory cooperation: Promoting international regulatory cooperation in cryptocurrency supervision.
- Overarching recommendation on retention: Protection of customer funds and assets held by CASPs.
- Segregation and handling of customer money and assets: Proper handling and protection of customer assets.
- Disclosure of custody and custody arrangements: Clear disclosures about the custody of client assets.
- Customer asset reconciliation and independent assurance: Ensure the reconciliation and independent security of customer assets.
- Securing customers’ money and assets: Implement controls for the security of customer assets.
- Management and disclosure of operational and technological risks: Addressing operational and technological risks at CASPs.
- Eligibility and disclosure of retail customers: Assessing the suitability of retail clients for investing in crypto assets and ensuring proper disclosure.
