IN THE wake of several high-profile collapses in the cryptocurrency and digital asset space, an international securities watchdog is pushing for a coordinated global regulatory response to investor protection and market integrity risks posed by centralised crypto-asset intermediaries.
In a report published on Thursday (Nov 16), the International Organization of Securities Commissions (Iosco) urged regulators to ensure that crypto-asset service providers (Casps) meet the standards of business conduct that apply in traditional financial markets.
Among the 18 new recommendations set out by Iosco were for regulators to require Casps to maintain high levels of disclosure relating to the products and service they provide, inform clients of their capacities as institutions, and ensure that client orders are handled fairly and equitably.
Centred on crypto and digital asset markets, the policy recommendations cover six areas: conflicts of interest arising from the vertical integration of activities and function; market manipulation, insider trading and fraud; custody and client asset protection; cross-border risks and regulatory cooperation; operational and technological risk; and retail distribution.
The watchdog said that the recommendations “set a clear and robust international regulatory baseline”.
The report also added on to an earlier one published by Iosco, which sought to better protect investor interest following a series of crypto busts.
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One notable example of such busts was the FTX cryptocurrency exchange linked to Sam Bankman-Fried, where customer assets and company funds were commingled without investor knowledge.
“The previous purpose of the report was to level the playing field for regulators… laying down the facts for everyone to have a common understanding of what’s going on,” said Valerie Szczepanik, director of FinHub at the US Securities and Exchange Commission (SEC). “What we try to bring forth in this report… is trying to come across with recommendations that allow for innovation but at the same time protect investors (and) protect the market.”
Speaking at the Iosco fintech task force panel at the Singapore Fintech Festival on Thursday, Szczepanik noted that each jurisdiction could also build on the recommendations, which act as a foundation for global regulation in the space.
In the latest version of the report, Iosco asked regulators to consider whether “certain conflicts were sufficiently acute” that they cannot be effectively mitigated. This referred specifically to exchanges that engage in multiple functions, including market making, brokerage services, proprietary trading, custody, lending and/or staking activities, among others.
Iosco also called for regulators to require Casps to manage and mitigate conflicts of interest surrounding the issuance, trading and listing of crypto assets. “This should include appropriate disclosure requirements and may necessitate a prohibition on a Casp listing and/or facilitating trading in its own proprietary crypto assets, or any crypto assets in which the Casp… may have a material interest,” wrote the report’s authors.
At the panel discussion on Thursday, the watchdog urged regulators to read the report and consider implementing it in their respective jurisdictions so as to make the market a safer place.
Iosco chairman Jean-Paul Servais said that the group will now focus on ensuring the adoption and implementation of the recommendations in the report.
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