IOSCO international securities body releases DeFi recommendations

The International Organization of Securities Commissions (IOSCO) released nine policy recommendations on Dec. 19. The organization is seeking to encourage greater consistency of regulatory oversight within and across jurisdictions.

The recommendations are the end result of a process that began with a report released early last year. They are far from groundbreaking — Rule 7, for example, is “enforce applicable laws” — but their value is in the detailed treatment each is given.

Thus, the guidance accompanying Rule 7 lists the various ways a decentralized finance (DeFi) or other market participant could seek to avoid regulation. “Regulators should assess whether they have the appropriate powers, tools and resources,” it advises, and it lists potential tools.

IOSCO finalizes its DeFi Policy Recommendations https://t.co/ZRik9g1mUd @IOSCOPress #defi #defiregulation #defirisks #decentralizedfinance #regulation

— FX News Group (@FXNewsGroup1) December 19, 2023

The report added, “IOSCO is also seeking to encourage consistency in the way crypto-asset markets and securities markets are regulated […] with the principle of ‘same activity, same risk, same regulation/regulatory outcome.’”

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The DeFi recommendations are a companion to a set of crypto and digital asset recommendations released in November. The organization also released a note on how the two sets of recommendations are to be applied in tandem, based on the level of decentralization of the regulated entity. In Recommendation 2 (“identify responsible persons”), the report claims:

“Some industry participants have asserted that if something is decentralized, it is not, or cannot be, regulated. […] However, regardless of a governance structure or how ‘decentralized’ the decision-making is, there is usually a Responsible Person(s) that controls, or sufficiently influences, the offer of products, provision of services, or engagement in activities.”

With its recommendations complete, IOSCO will shift its focus to monitoring, regulatory capacity building and technical assistance to members, it wrote. IOSCO members consist of over 130 authorities that regulate 95% of the world’s financial markets.

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