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International Securities Commission (IOSCO) proposes guidelines for DeFi oversight



IOSCO has released a document that contains a guideline for overseeing the DeFi ecosystem around the world. This initiative aims to tackle the challenges in regulating DeFi and offer policy recommendations to effectively supervise this rapidly growing industry.

The development of the DeFi guidelines by IOSCO started in 2022. In March of the same year, the Fintech Task Force (FTF) was established to create recommendations for the IOSCO Board and ensure the implementation of its regulatory agenda.

The FTF’s efforts were guided by mapping IOSCO standards to various DeFi products, services, arrangements, and activities. This enabled IOSCO to thoroughly examine and assess how its existing policy framework aligns with the key risks associated with DeFi.

In September 2023, IOSCO opened a public consultation on proposed policy recommendations for decentralized finance (DeFi), which will be finalized by the end of 2023. The consultation report contains 18 recommendations structured thematically, covering key areas such as market surveillance, custody, and marketing and distribution. 

The organization’s objectives include promoting cooperation among members, sharing information with exchanges, and establishing standards for monitoring global investment transactions across borders and markets. 

Details of the guideline reveals that the nine policy recommendations are designed to focus on six key areas. Understanding DeFi arrangements and structures; achieving common standards of regulatory outcomes; identification and management of key risks; clear, accurate and comprehensive disclosures; enforcement of applicable laws; and cross-border cooperation.

These guidelines for DeFi complement the previously issued Policy Recommendations for Crypto and Digital Assets (CDA) Markets in November 2023. Both sets of recommendations align with IOSCO’s Crypto-Asset Roadmap 2022/2023, which highlights interoperability between the two frameworks.

Having delivered these recommendations, IOSCO is now shifting its focus towards monitoring implementation, capacity building, and providing technical assistance to its members. The organization recognizes that different jurisdictions are at varying stages in addressing risks associated with crypto-asset markets and decentralized finance.

Jean-Paul Servais, IOSCO Chair, expresses satisfaction with the organization’s swift delivery on the policy ambitions outlined in the Crypto-Asset Roadmap within less than eighteen months. 

Acknowledging the real risks in crypto-asset markets, the goal is to coordinate efforts for consistent implementation of IOSCO recommendations across member jurisdictions to protect investors globally.

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