IOSCO establishes a global approach to address risks in decentralised finance 

The International Organization of Securities Commissions (IOSCO), the global standard setter for the securities markets, has issued for consultation nine policy recommendations to address market integrity and investor protection concerns arising from Decentralised Finance (DeFi).

This was contained in a statement issued by the international organization and obtained by Nairametrics.

The recommendations

According to the statement, 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:

The recommendations include understanding DeFi arrangements and structures, achieving common standards of regulatory outcomes, and identifying and managing key risks.

Others include clear, accurate, and comprehensive disclosures, enforcement of applicable laws, and cross-border cooperation.

What the stakeholders are saying

Jean-Paul Servais, IOSCO Board Chairman 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, Chairman 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 noted that it 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.