The International Organization of Securities Commissions emphasized the importance of regulators understanding DeFi products before deciding on applicable policy.
Global securities regulator IOSCO published guidelines on Monday for the regulation of DeFi projects.
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Posted December 20, 2023 at 4:45 pm EST.
The International Organization of Securities Commissions (IOSCO), which aims to set global standards for financial securities, released a report on Tuesday that detailed policy recommendations for the oversight and regulation of decentralized finance (DeFi).
The DeFi Policy Recommendations are meant to complement the Crypto and Digital Assets (CDA) Markets report that IOSCO released last month. Both are part of the organization’s Crypto-Asset Roadmap 2022/2023, an effort to set a global regulatory agenda for fintech and crypto-assets.
“The two sets of policy recommendations on CDA and DeFi provide a coherent and robust policy framework to tackle the core risks posed by crypto-asset markets. This will help facilitate a fair and transparent playing field where responsible innovation can occur while ensuring investor protection and market integrity outcomes,” said Tuang Lee Lim, chair of the IOSCO Board-Level Fintech Task Force, in the press release.
DeFi Regulatory Guidelines
In the new report, IOSCO, a member organization that represents approximately 130 jurisdictions and 95% of securities markets around the world, outlined policy recommendations in a nine-point plan that can be understood to address two concerns: understanding DeFi and regulating DeFi.
In its guidelines, IOSCO emphasizes the need for regulators to first grasp the technology and framework of DeFi products to decide if existing regulations suffice or if new ones are required. Understanding the key players behind these projects, such as core developers or decentralized autonomous organizations, is crucial to determine who falls under legal purview. The report also recommends that DeFi projects should offer transparent and detailed disclosures about their operations, governance, risks, potential conflicts of interest and financial health.
The regulating DeFi framework builds out from there to include enforcing existing laws, achieving common regulatory standards for when existing models don’t apply, cross-border cooperation among regulators and understanding and accessing the interconnectedness of DeFi, the broader crypto-asset market and traditional financial markets.
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