A Global Approach to DeFi Regulation

Regulation | Sep 7, 2023

Recognizing the borderless nature of DeFi and its potential to revolutionize financial markets, IOSCO has established a global approach to address the associated risks and uncertainties.

In a media release dated September 7, 2023, IOSCO unveiled nine policy recommendations that span six crucial areas, ensuring a comprehensive framework for DeFi regulation. These recommendations are a testament to IOSCO’s commitment to fostering innovation while upholding market integrity and investor protection.

Key Areas of Focus

The six crucial areas covered by the International Organization of Securities Commissions (IOSCO) in their policy recommendations for Decentralized Finance (DeFi) are:

See: Bank of Canada Publishes Analytical Notes on DeFi

Understanding DeFi Arrangements and Structures: Analyzing DeFi products, services, arrangements, and activities to assess how existing regulatory frameworks might apply and identifying any potential gaps in regulation.
Achieving Common Regulatory Standards: Working towards consistency in regulatory frameworks and oversight across different jurisdictions to ensure a level playing field and to address the cross-border nature of DeFi.
Managing Key Risks: Identifying and addressing the material risks associated with DeFi, including operational, technological, and market risks, to protect investors and ensure market integrity.
Ensuring Clear Disclosures: Requiring clear, accurate, and comprehensive disclosures from DeFi participants to provide investors with the information they need to make informed decisions.
Enforcing Applicable Laws: Ensuring that existing laws and regulations are enforced, and taking action against DeFi participants that operate outside of regulatory frameworks or engage in illicit activities.
Enhancing Cross-Border Cooperation: Promoting cooperation and information sharing among regulators to address the challenges posed by the global and decentralized nature of DeFi, and to coordinate responses to cross-border regulatory and enforcement issues.

These areas are designed to provide a comprehensive framework for the regulation of DeFi, addressing the unique challenges posed by this emerging sector and ensuring that investors are protected and markets remain stable and transparent.

Public Consultation

In a move to promote transparency and inclusivity, IOSCO has opened the floor for public consultation, inviting stakeholders to provide their input on the policy recommendations. The consultation period is set to conclude on October 19, 2023, with the finalization of the DeFi recommendations expected by the end of the year. This collaborative approach ensures that the final policy framework is well-rounded and takes into account the diverse perspectives of all stakeholders involved.

See: Adapting IOSCO Principles to Digital Assets Markets

To stay updated on the progress of IOSCO’s DeFi policy recommendations and to contribute to the public consultation, visit IOSCO's official website. Together, we can shape the future of finance and ensure that DeFi reaches its full potential in a secure and regulated environment.

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