IOSCO, the global securities watchdog, has called on regulators worldwide to take faster and bolder action in regulating cryptocurrency markets, and has recommended the breakup of companies with persistent conflicts of interest. In response to a series of industry crises, particularly the recent issues surrounding the crypto exchange FTX, IOSCO has released a comprehensive blueprint outlining stricter standards for authorities. The 18-point plan covers various areas including conflicts of interest, disclosure rules, and governance. (See https://www.iosco.org/news/pdf/IOSCONEWS693.pdf)
While the EU recently finalized extensive regulations for cryptocurrencies, the United Kingdom is in the early stages of developing its own rules, which are expected to be more adaptable than those in Europe. The Financial Stability Board, a body of global financial policymakers, is set to publish its recommendations for reducing the risks to financial stability posed by cryptocurrencies in July.
Martin Moloney, the Secretary-General of IOSCO, emphasized that the current diversity across jurisdictions is not due to varying regulatory directions, but rather the insufficient progress made by regulators in the intended direction. He urged jurisdictions to push ahead with the implementation of these standards as quickly as possible, regardless of their distinct legal and regulatory frameworks. Moloney stated that hesitating at this stage is unproductive and unhelpful.
The recent failures of FTX and its close association with Alameda Research, a related trading group, have provided regulators with renewed motivation to establish or enhance standards.
The proposed guidelines urge regulators to assess whether certain conflicts of interest are so significant that they cannot be effectively mitigated. In such cases, regulators may require stronger measures such as legal separation and independent registration and regulation of specific activities.
This consultation report presents 18 policy recommendations put forth by IOSCO, which aims to finalize them in the early part of the fourth quarter of this year. These recommendations are intended to promote greater uniformity in regulatory frameworks and oversight across member jurisdictions, addressing concerns regarding market integrity and investor protection in relation to crypto-asset activities. The recommendations have been developed under the guidance of IOSCO Board's Fintech Task Force (FTF), in line with the Crypto-Asset Roadmap published by IOSCO in June 2022.
The proposed recommendations follow a principles-based and outcomes-focused approach, specifically targeting the activities carried out by crypto-asset service providers (CASPs). They draw upon IOSCO's globally accepted standards for regulating securities markets to tackle the key issues and risks identified in crypto-asset markets. The recommendations take an activities-based approach, following a comprehensive 'lifecycle' framework that addresses the identified risks throughout various stages. These stages encompass activities related to CASPs, including offering, admission to trading, ongoing trading, settlement, market surveillance, custody, marketing, and distribution (covering both advised and non-advised sales) to retail investors. It is important to note that the proposed recommendations do not extend to activities, products, or services provided in the realm of "decentralized finance" or "DeFi." The FTF DeFi workstream is separately examining issues related to DeFi and will release a consultation report with proposed recommendations later this summer.
Moloney described this as a powerful challenge by IOSCO to the global regulatory community to address the issue of businesses that have been built on conflicts of interest. Although IOSCO lacks the authority to enforce these rules, Moloney expressed confidence in the implementation by its membership, which spans 130 countries and covers 95% of global financial markets. He stated that persistent non-compliance with IOSCO's recommendations would not be sustainable for its members.
It would take several years for even major jurisdictions to fully meet the demanding recommendations, which also include proposals on fair dealing, disclosure, and corporate governance.
As far as Klima is concerned, there doesn't seem to be a direct connection between the Klima project described and the guidelines’ specificity for now. While our project focuses on funding three solutions related to climate change (ecosystem revival, green innovation, and community support), the guidelines provided seem to be related to the regulation and governance of crypto-assets and trading platforms with no sector-specific approach.