Global Securities Regulator IOSCO Issues DeFi Policy Recommendations

Global Securities Regulator IOSCO Issues DeFi Policy Recommendations – The global regulator for securities markets has issued guidance on overseeing decentralized finance (DeFi) as its members, spanning around 130 jurisdictions, explore methods to regulate the industry.

The International Organization of Securities Commissions (IOSCO), whose members oversee more than 95% of global securities markets, released policy recommendations for decentralized finance (DeFi) on Tuesday, following its recent publication of guidelines for regulating crypto markets just a month ago.

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Dealing with DeFi has posed challenges for regulators due to its decentralized nature, lacking a central body for supervision. However, IOSCO, in a September report, advised governments to identify the entities responsible for innovative financial applications and regulate them in a manner akin to traditional finance.

“Given the similar economic functions and activities of DeFi and traditional financial markets, many existing international policies, standards, and jurisdictional regulatory frameworks are applicable to those DeFi activities and those mechanisms that govern them,” the regulator said.

IOSCO suggested adapting existing rules when they do not apply, emphasizing the need for modification. The DeFi guidance outlines procedures for identifying responsible parties, establishing transparent disclosure requirements, and enforcing relevant laws.

Responsible persons include anyone “exercising control or sufficient influence over a financial product offered, financial service provided, or financial activity engaged in (or over products, services, and activities that behave like, or have been substituted by investors for, financial products, services, and activities) by the DeFi arrangement.”

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Therefore, operating as a decentralized autonomous organization (DAO) rather than incorporating does not “abdicate these persons and entities of their regulatory responsibilities,” IOSCO said. “Regardless of the labels, organizational forms, or technologies used, persons and entities who offer or provide financial products and services and engage in financial activities should be subject to applicable laws.”

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