Global regulators are moving closer to reining-in crypto-asset markets following the release of final recommendations by the International Organization of Securities Commissions (IOSCO) last week.
Following a more than 12-month consulting period, IOSCO handed down 18 proposed rules to govern crypto-asset regulations grouped under six broad categories.
Jean-Paul Servais, IOSCO chair, said the new digital asset recommendations mark the first phase in the global regulatory effort to ensure crypto markets “operate fairly, efficiently and transparently”.
“Next, our attention turns to ensuring the adoption and implementation of the recommendations to support optimal consistency in the way crypto-asset markets and activities are regulated across IOSCO member jurisdictions,” Servais said in a release.
Crucially, the proto-regulations call for a globally co-ordinated approach to governing digital asset providers given many of them “present themselves as operating in a borderless manner and tend to take an ambivalent approach to regulatory compliance”.
“This – in tandem with the global reach of the crypto-asset market, its participants, activities, and some unique characteristics linked to the underlying distributed ledger technology… and cryptography, as well as the scale and scope for cross-border regulatory arbitrage – means that investor protection and market integrity issues will persist without coordinated international regulatory action to address them,” the final report says.
“IOSCO’s wide memberships in securities and derivatives markets, with market conduct regulatory expertise and existing information-sharing tools for authorization, supervision and enforcement, are well positioned to achieve investor protection and market integrity objectives.”
In October this year the Australian government released formal licensing plans for crypto-asset exchanges including custody and transaction standards. Other jurisdictions, such as the UK and Canada, have introduced some crypto regulations with others signaling intentions to follow suit.
The previous NZ parliament tabled a report in August this year, laying out 22 proposals to regulate and encourage the digital asset ‘ecosystem’ in the country.
However, the IOSCO recommendations adopt a tougher tone with more details on ways to manage issues such as custody, market manipulation, operational and technology risks and retail distribution.
“… a particularly acute asymmetry of information arises between CASPs [crypto-asset service providers] and the retail investor, the significance of which is intensified by the weak market discipline arising in part from the relatively low level of participation of institutional and professional investors, and the unregulated or non-compliant distribution channels that are used to distribute crypto-assets to retail investors, often on a cross-border basis,” the report says.
The IOSCO paper says most digital asset market activities mirror those in traditional financial sectors, underpinning the principle of “same activity, same risk, same regulatory outcome”.
Last week, US regulators pinged mega global crypto exchange, Binance, with a US$4.3 billion fine for criminal breaches of anti money-laundering compliance laws. Outspoken Binance chief, Changpeng Zhao, also resigned and paid a US$50 million personal fine as part of the deal with the Securities Exchange Commission.