Report:  Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms

IOSCO | Feb 12, 2020

The emergence of crypto-assets is an important area of interest for regulatory authorities, including those with authority over secondary markets and the trading platforms that facilitate the secondary trading of crypto-assets (Crypto-asset Trading Platforms or CTPs). The aim of this Final Report is to assist IOSCO members in evaluating the issues and risks relating to CTPs.

Published in February 2017, the IOSCO Research Report on Financial Technologies (Fintech), the Fintech Report discussed distributed ledger technologies (DLT) and the role of tokenization of assets and fiat money. In the Fintech Report,

IOSCO noted that “Tokenization is the process of digitally representing an asset, or ownership of an asset. A token represents an asset or ownership of an asset. Such assets can be currencies, commodities or securities or properties.”

For this Final Report, crypto-assets are a type of private asset that depends primarily on cryptography and DLT or similar technology as part of its perceived or inherent value, and can represent an asset such as a currency, commodity or security, or be a derivative on a commodity or security.

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Where a regulatory authority has determined that a crypto-asset or an activity involving a crypto-asset falls within its jurisdiction, IOSCO’s Objectives and Principles of Securities Regulation2 (IOSCO Principles) and the Assessment Methodology3 (the Methodology) provide useful guidance in considering the novel and unique issues and risks that arise in this new market. The IOSCO Principles and Methodology also facilitate the promotion of IOSCO’s core objectives of securities regulation,4 which include protecting investors and ensuring that the markets are fair, efficient and transparent.

The Final Report describes issues and risks identified to date that are associated with the trading of crypto-assets on CTPs. In relation to the issues and risks identified, it describes key considerations and provides related toolkits that are useful for each key consideration. These key considerations and toolkits are intended to assist regulatory authorities who may be evaluating CTPs within the context of their regulatory frameworks.

The key considerations relate to:

• Access to CTPs;
• Safeguarding participant assets;
• Conflicts of interest;
• Operations of CTPs;
• Market integrity;
• Price discovery; and
• Technology.

The operational model adopted by a CTP and the existing regulatory framework may determine the extent to which issues or risks exist, are relevant or have already been mitigated. IOSCO recognizes that this market is new and rapidly evolving. As a result, the key considerations and toolkits put forward in the Final Report are not intended to suggest or mandate any particular regulatory action or requirement. They represent specific areas that IOSCO believes jurisdictions could consider in the context of the regulation of CTPs.

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The toolkits are examples of measures that can be used by regulatory authorities to address the key considerations and the associated risks and issues. For any particular IOSCO member there may be other considerations not highlighted in this report that it views as relevant to its legal and regulatory framework. IOSCO will continue to monitor the evolution of the markets for crypto-assets, with a view to ensuring that the issues, risks and key considerations identified in this report remain relevant and appropriate.

Finally, this Final Report does not include an analysis of the criteria that are used by regulatory authorities to determine whether a crypto-asset falls within its remit. Rather, it focuses on the trading of crypto-assets on CTPs when the regulatory authority has determined that it has the legal authority to regulate those assets or the specific activity involving those assets.

IOSCO Report:  Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms (55pg PDF) -> Download Now