Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Decentralized Finance on December 19, 2023. The nine recommendations are intended to promote consistency of global regulatory frameworks for DeFi in the interests of market integrity and investor protection.
The recommendations propose that regulators:
- Analyze DeFi products, services, activities and arrangements to determine the appropriate regulatory response.
- Identify those potentially subject to DeFi regulatory frameworks (so-called “Responsible Persons”)—this can be more challenging in light of decentralization, but regulation would apply to those who control or sufficiently influence the offer of financial products and services or engagement in financial activities, e.g., founders, issuers of governance or voting tokens and those responsible for maintaining protocols.
- Establish regulatory frameworks that achieve outcomes which are consistent with those governing traditional financial markets.
- Require Responsible Persons to:
- identify and address conflicts of interest e.g., where they are involved in multiple activities across the financial system;
- identify and address material risks, including operational and technology risks;
- disclose clear and comprehensive information about the products and services offered.
- Take effective enforcement action, where necessary, with respect to DeFi products.
- Cooperate with regulators in other jurisdictions, including sharing information on areas such as emerging risks, licensing applications and supervision—this is particularly important given DeFi products and services are often based in multiple jurisdictions or provided on a cross-border basis.
- Understand the interconnections between DeFi arrangements, the broader cryptoasset market and traditional financial markets.
The DeFi Recommendations are accompanied by an Umbrella Note which explains how they relate to IOSCO’s separate series of recommendations for crypto and digital assets markets, published in November 2023.
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