IOSCO urges tougher global crypto regulatory action

Cross-border cooperation named as key factor in enabling regulators to take on bad actors in crypto.

The International Organization of Securities Commissions (IOSCO) today issued a consultation outlining how jurisdictions worldwide should take action on crypto regulations. While the IOSCO can only publish guidelines, pressure is mounting on regulators to protect consumers.

“Crypto-asset service providers need to address unacceptable conflicts of interest and take far more seriously the right of clients to have their monies and assets carefully minded and accounted for,” said Lim Tuang Lee, Chairperson, IOSCO Board-Level Fintech Task Force. “It is time for regulators to work together across borders and various jurisdictions to ensure that investor protection and market integrity are upheld in crypto-asset markets.”

Designed to improve global standards on crypto-assets, the recommendations cover six areas:

  • Conflicts of interest arising from vertical integration of activities and functions.
  • Market manipulation, insider trading and fraud.
  • Cross-border risks and regulatory cooperation.
  • Custody and client asset protection.
  • Operational and technological risk.
  • Retail access, suitability, and distribution.

The consultation paper references some recent crypto industry watershed moments, including the FTX collapse, Bitzlato AML case, and Coinbase insider trading.

The recommendations extend to stablecoins, which the IOSCO says in many cases are neither backed nor collateralized by reserve assets.

Cross-border risks

Regulators should be interacting across borders, the IOSCO stressed, saying “crypto-asset related information requests are already captured by IOSCO’s Multilateral Memorandum of Understanding (MMoU) and Enhanced Multilateral Memorandum of Understanding (EMMoU), premised on the underlying principle of same activity, same risk, same regulatory outcome. In tandem with the overarching MMoU and EMMoU, regulators should take proactive steps, bilateral or multilateral, to enable sharing of information for effective supervision and enforcement”.

Jean-Paul Servais, Chairperson, IOSCO, said: “As the G7 Finance Ministers and Central Bank communiqué of 13 May has once again reminded us, the time has come to put an end to the regulatory uncertainty that characterises crypto activities. Today’s consultation paper … will mark a turning point in addressing the very clear and proximate risks to investor protection and market integrity risks.”

In October 2022, the The European Securities and Markets Authority (ESMA) underscored the importance of the IOSCO setting standards, saying “given the cross-border nature of the crypto-asset market, the importance of global standard setting organisations, such as the Financial Stability Board (FSB) and the international Organization of Securities Commissions (IOSCO), cannot be understated”.

The IOSCO has issued regulatory proposals for other sectors including ESG and retail markets.

The full consultation can be found on the IOSCO website.