IOSCO (international)

The International Organization of Securities Commissions (IOSCO) has launched a consultation to obtain detailed recommendations on how to regulate crypto-assets globally. This initiative aims to improve international standards for crypto-asset regulation, describing how customers should be protected and how crypto-asset exchanges should meet the standards that apply to markets.

Jean-Paul Servais, Chairman of IOSCO, emphasized the need to end the regulatory uncertainty surrounding activities related to crypto-assets.

The recommendations cover six key areas:

1. Conflicts of interest arising from the vertical integration of activities and functions,

2. Market manipulation, insider trading, and fraud,

3. Cross-border risks and regulatory cooperation,

4. Custody and protection of client assets,

5. Operational and technological risks,

6. Retail access, suitability, and distribution.

IOSCO has opened a public consultation on its recommendations and intends to finalize them by the end of 2023.

It then expects the various jurisdictions to examine their regulatory framework to ensure it complies with the standards and, where necessary, to quickly fill regulatory gaps.

FSB (international)

The Financial Stability Board (FSB) is an international body that monitors the global financial system and makes recommendations about it.

The FSB promotes international financial stability by coordinating national financial authorities and international standard-setting bodies that work to develop sound policies in the areas of regulation, supervision, and other financial sector policies. The policies developed under this program are implemented by jurisdictions and national authorities.

FSB Global Regulatory Framework for Crypto-Asset Activities

The FSB has established a global framework to regulate activities related to cryptocurrencies. This framework follows the principle of “same activity, same risk, same rule” to ensure that activities related to cryptocurrencies and stablecoins are regulated uniformly and comprehensively.

There are two parts to this framework: one for regulating, supervising, and monitoring cryptocurrency activities and markets, and another for “global stablecoin” arrangements.

The FSB and standard-setting groups for each sector have created a work plan for 2023 and the following years. This plan aims to develop a global regulatory framework that complements current and future laws and regulations.

High-level recommendations for the regulation, supervision, and oversight of crypto-asset activities and markets

The FSB has published a consultative report on the regulation, supervision, and oversight of crypto-asset activities and markets, including a series of recommendations.

The recommendations aim to promote a technologically neutral, activity-based, and risk-based regulatory, supervisory, and oversight framework. The recommendations do not comprehensively address all specific risk categories related to crypto-asset activities, such as combating money laundering and terrorist financing, data privacy, cybersecurity, consumer and investor protection, market integrity, competition policy, taxation, monetary policy, monetary sovereignty, and other macroeconomic concerns.

Here is a summary of the recommendation topics:

1. Regulatory powers and tools: The FSB emphasizes that authorities must have the necessary powers and tools to effectively regulate crypto-assets. This means that regulatory bodies should be able to define rules and standards for crypto-assets, enforce these rules, and take sanctions against entities that do not comply with regulation. The FSB also suggests that regulatory bodies should have the ability to monitor the crypto-asset market, collect data, and analyze trends.

2. Cross-border cooperation: The FSB recommends that authorities cooperate and share information to effectively regulate crypto-assets that operate across borders. This can materialize through the establishment of information-sharing agreements (see on the subject: DAC8) or participation in international forums to discuss crypto-asset regulation. Cross-border cooperation can help prevent regulatory arbitrage (forum shopping), where entities move their operations to jurisdictions with less strict and/or non-existent regulations.

3. Risk management: The FSB suggests that authorities implement systems to manage the risks associated with crypto-assets. This means that regulatory bodies should be able to identify, assess, monitor, and mitigate risks. The FSB also suggests that regulatory bodies establish contingency plans to deal with potential crises. This type of plan will ensure they are ready to respond effectively to market disruptions, financial crises, or other adverse events such as those encountered in 2022 (Terra, Celsius, BlockFi, FTX,…).

4. Data collection and reporting: The FSB recommends that authorities collect data on crypto-assets. Regulatory bodies must then equip themselves with systems to gather data on the crypto-asset market, including data on transaction volumes, market prices, and the number of users. This data can help regulatory bodies understand the market, identify trends, and develop appropriate regulatory responses. The FSB also suggests that regulatory bodies communicate this data to the public, to promote transparency and accountability of actors.

Let us recall that the FSB’s mission is to develop and promote effective financial policies, but its decisions are not legally binding. These are rather guidelines to help us navigate the world of crypto-assets.

What does this mean for you? It’s simple. If you participate in the ecosystem, you need to know these recommendations. They will help you understand the rules of the game and comply.

High-level recommendations for the regulation, supervision, and oversight of Global Stablecoin Arrangements

The FSB has published a review of its recommendations aimed at promoting consistent and effective regulation, supervision, and oversight of global stablecoin payment arrangements (Global Stablecoin Arrangements - GSC) across jurisdictions, to address the potential risks they pose to financial stability, both nationally and internationally, while supporting responsible innovation and providing sufficient flexibility for jurisdictions to implement national approaches.

The FSB has formulated ten recommendations covering all aspects, from regulatory readiness to risk management.

These recommendations only target “global stablecoins” which, according to the FSB’s definition, are:

A stablecoin with an existing or potential reach and use across multiple jurisdictions and which could become systemically important in and across one or more jurisdictions, including as a means of making payments and/or as a store of value.

Here are the key points of the recommendations:

1. Regulation, supervision, and oversight: The FSB emphasizes that stablecoins must be subject to comprehensive regulation, supervision, and oversight. This is to ensure they are not used for illegal activities and that they maintain their “stable” value. This could involve setting up a regulatory body dedicated to overseeing stablecoin activities, implementing strict KYC and AML policies, and ensuring that stablecoin issuers have the necessary capital to maintain the value of their stablecoins (see on the notion of reserve funds). The FSB also suggests that jurisdictions cooperate and share information to effectively regulate stablecoins that operate beyond their borders.

2. Legal clarity: The FSB recommends that stablecoins have a clear legal basis in all jurisdictions where they operate. This means that the rights and obligations of all parties involved (including users, issuers, and intermediaries) must be clearly defined and enforceable. Legal clarity is crucial to protect users and maintain trust in stablecoins. This could involve creating a legal framework specifically for stablecoins, or adapting existing laws to cover stablecoins.

3. Sound governance framework: The FSB suggests that stablecoin arrangements should have a sound governance framework. This includes a clear organizational structure, effective risk management procedures, and transparent decision-making processes. A governance framework can help ensure that stablecoins operate safely and efficiently and that they can manage risks effectively.

4. Financial resilience: The FSB recommends that stablecoin issuers must have adequate financial resources to withstand shocks. This could involve holding a reserve of assets to back the value of stablecoins or having access to liquidity facilities. Financial resilience is crucial for maintaining the stability of the stablecoin and protecting users.

5. Operational resilience: The FSB suggests that stablecoin issuers have robust systems in place to ensure operational resilience (see on this subject in Europe: DORA ACT). This includes secure and reliable technological systems, effective cybersecurity measures, and contingency plans for dealing with operational disruptions. Operational resilience is crucial to ensure that stablecoin issuers can continue to operate effectively under various conditions.

6. Effective risk management: The FSB recommends that stablecoin issuers have effective risk management frameworks in place. This includes establishing procedures for identifying, assessing, monitoring, and managing risks. Effective risk management can help ensure that stablecoin issuers can effectively manage risks and continue to operate safely and efficiently.

7. Transparency: The FSB suggests that stablecoin issuers provide clear and comprehensive information to users. This includes providing information on users’ rights and obligations, the risks associated with using the stablecoin, and the measures in place to protect users. Transparency is crucial to ensure that users can make informed decisions and maintain trust in the stablecoin.

8. AML/CFT measures: The FSB recommends that stablecoin issuers have effective anti-money laundering and counter-terrorist financing measures in place. This includes establishing procedures to identify and report suspicious transactions and to verify user identities. AML/CFT measures are crucial to prevent stablecoins from being used for illegal activities.

9. Cross-border cooperation: The FSB suggests that jurisdictions cooperate and share information to effectively regulate stablecoins that operate across borders. This could involve setting up information-sharing agreements or participating in international forums to discuss stablecoin regulation. Cross-border cooperation is essential to ensure that stablecoin issuers are effectively regulated in all jurisdictions where they operate.

10. Adaptability: The FSB recommends that regulatory, supervisory, and oversight frameworks be adaptable and flexible to deal with the evolution of stablecoins. This could involve regularly reviewing and updating regulations and being open to new approaches to regulation. Evolution and adaptation are crucial to ensure that regulatory frameworks can effectively deal with new developments and challenges in the stablecoin sector.

The report also includes useful annexes containing key considerations for the design of cooperation arrangements, a common disclosure template for reserve assets, and potential elements for determining whether a stablecoin may be considered a “global stablecoin.”

What is the takeaway? If you are involved in stablecoins, these recommendations should be integrated into your roadmap while taking into account the European MiCA regulation which (strictly) regulates stablecoin issuance.

ESMA (EU)

ESMA, the European financial regulatory institution, has launched a public consultation on certain technical standards relating to the implementation of the MiCA regulation. It has published a consultation document and invites all interested stakeholders to respond.

This includes crypto-asset issuers, service providers, financial entities, and anyone with an interest in crypto-assets.

The response deadline is set for September 20, 2023. ESMA will review all comments received and may publish them, unless otherwise requested.

The document contains seven sections related to:

1. Content, forms, and templates for notification: The document addresses the content, forms, and templates necessary for notification of activity by certain financial entities.

2. Application for authorization of crypto-asset service providers (CASPs): It covers the content, forms, and templates for the CASP (crypto-asset service provider) authorization application.

3. Complaint handling procedure: The document describes the complaint handling procedure for CASPs.

4. Conflicts of interest: It addresses the identification, prevention, management, and disclosure of conflicts of interest by CASPs.

5. Assessment of proposed acquisitions of qualifying holdings: The document covers the assessment of planned acquisition of qualifying holdings requirements.

ESMA will take into account the comments received in this consultation and plans to publish a final report and submit the draft technical standards to the European Commission for approval by June 30, 2024 at the latest.

What is the takeaway? If you are involved in crypto-assets, this consultation is important because it aims to put in place the regulatory technical standards that will be used by national authorities in the implementation of the European MiCA regulation.

To go further: cryptomonnaie.be — The Belgian cryptocurrency blog | Newsletter CryptoBelgique — Stay informed of news and updates