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IOSCO crypto-assets: how securities rules can apply to DeFi

crypto regulation

The international body of securities regulators, IOSCO, has outlined a work program on crypto-assets, which will feed into the Financial Stability Board’s (FSBs) agenda on the topic. Last week the U.S. Treasury emphasized its work on digital assets would involve coordination with international bodies and those setting standards. Additionally, today the FSB reiterated the need for action on crypto-assets.

IOSCO is planning two crypto-related workstreams, one for crypto and digital assets, and the other for decentralized finance (DeFi). Both of them will report back in Q4 of 2023.

For crypto and digital assets, the focus is on the markets: whether they are fair, orderly and transparent and the extent to which market manipulation exists. In the United States, the SEC has refused to give any cash Bitcoin ETF the green light because of concerns over market manipulation. The UK’s Financial Conduct Authority will lead the workstream, which will explore regulatory considerations in each jurisdiction.

The U.S. Securities and Exchange Commission (SEC) will lead the DeFi working group. It also plans to explore market integrity issues as well as investor protection and financial stability risks. 

One goal is to establish where it can apply existing IOSCO principles and standards for securities to crypto-assets. It will provide guidance on managing DeFi risks within regulatory frameworks and whether regulation could support innovation. 

Additionally, it will explore links between DeFi, stablecoins, crypto trading, and crypto-asset lending platforms. Given the aim of integrating with the work of the FSB, it will also investigate the potential for spillovers into traditional finance.

Meanwhile, today’s statement from the FSB emphasized this risk, particularly whether the collapse of an asset-backed stablecoin could impact short term funding markets.

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