The question of how securities laws should apply to cryptocurrencies continues to grow in importance.
At least that’s the view of Lim Tuang Lee, Assistant Managing Director, Capital Markets for the Monetary Authority of Singapore.
Lim is also the Chair of the Fintech Working Group at the International Organization of Securities Commissions (IOSCO). The task force was recently tasked with developing a set of specific crypto policy recommendations for securities regulators around the world.
Jurisdictions vary widely in how lenient they are toward crypto projects that can resemble traditional securities. Some allow certain businesses to operate in ways that others consider illegal.
International guidelines are urgently needed, Lim said in a recent speech in London, adding that the dramatic collapse of the crypto market earlier this year had a major impact on IOSCO’s decision to draft common standards. He also cited recent hacking attacks and cryptocurrency scams as reasons for the activation.
The global securities watchdog aims to publish the recommendations by the end of next year. It is important to note that while IOSCO has influence, its recommendations are not binding.
IOSCO addresses the booming sector
First established in 1983, IOSCO is a forum through which national securities regulators exchange information about securities markets. In 1998, the organization, which now has more than 130 jurisdictions as members, adopted a set of financial regulatory criteria called “Objectives and Principles of Securities Regulation”. These criteria were endorsed by the G-20.
Cryptocurrencies have been a focus for IOSCO since at least 2017, when the organization created the Initial Coin Offering Network to help members exchange information about cryptocurrencies. In 2019, the watchdog shared a statement claiming that stablecoins could fall under the purview of securities regulators.
Now the organization has decided to take another step forward.
“We think it’s about time … to make this change in approach”said a spokesperson for the IOSCO General Secretariat.
The cryptocurrency sector has seen significant developments in terms of product structuring and offering, investors in the sector and its global reach.
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This is not just due to the market crash. In his speech, Lim also stated that hacks and scams, which have been a constant part of the crypto market for years, have highlighted concerns about the fairness and sustainability of the crypto market.
“The DeFi market and its participants … have operated outside the scope of existing regulatory frameworks or failed to comply with applicable regulations”Lim said.
The traditional financial system operates with intermediaries who have duties such as fiduciary duties to investors and best interests to brokers. Traditional financial regulation targets these intermediaries. As DeFi protocols are peer-to-peer systems without intermediaries, it is not possible to regulate them with traditional frameworks.
IOSCO’s new initiative will be led by its FinTech Working Group, which is chaired by the Monetary Authority of Singapore and currently has 27 members from IOSCO Council member jurisdictions.
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