IOSCO finalizes its DeFi Policy Recommendations

After earlier this year opening a public consultation to establish a global approach in addressing DeFi risks, the IOSCO – the umbrella international policy forum for securities regulators worldwide – has published its Final Report with Policy Recommendations for Decentralized Finance (DeFi).

The nine Policy Recommendations aim to address market integrity and investor protection concerns arising from DeFi by supporting greater consistency of regulatory frameworks and oversight in member jurisdictions. The Recommendations cover six key areas: (1) Understanding DeFi Arrangements and Structures, (2) Achieving Common Standards of Regulatory Outcomes, (3) Identification and Management of Key Risks (4) Clear, Accurate and Comprehensive Disclosures (5) Enforcement of Applicable Laws, and (6) Cross-Border Cooperation.

The DeFi Policy Recommendations are complementary to the Policy Recommendations for Crypto and Digital Assets (CDA) Markets issued in November 2023. The two sets of IOSCO recommendations have been developed in accordance with IOSCO’s Crypto-Asset Roadmap 2022/2023, and the interoperability between the two sets of Recommendations is detailed in the Umbrella Note which has been published alongside the DeFi Final Report.

With delivery of these Recommendations, the IOSCO is now shifting attention towards implementation monitoring, capacity building and technical assistance needs of its members. IOSCO said it recognizes that jurisdictions are at different stages of tackling the risks presented by crypto-asset markets and decentralized finance. Some have existing regimes in place while others must develop new, bespoke frameworks.

Jean-Paul Servais, IOSCO Chair said:

“I am pleased that IOSCO has delivered on the policy ambitions outlined in our Crypto-Asset Roadmap in less than eighteen months. The risks of crypto-asset markets are real and we are tackling these in a coordinated manner, seeking consistent implementation of these IOSCO Recommendations across our membership to best protect investors globally.”

Tuang Lee Lim, Chair of the IOSCO Board-Level Fintech Task Force, set up to develop the policy measures, said:

“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.”

IOSCO is the leading international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. The organization’s membership regulates more than 95% of the world’s securities markets in some 130 jurisdictions, and it continues to expand.

The full IOSCO Final Report with Policy Recommendations for Decentralized Finance (DeFi) can be found here (pdf).