Our joint response with EUCI to IOSCO’s Consultation Report for Crypto and Digital Asset Markets

In May, the International Organisation of Securities Commissions (IOSCO) published its long awaited consultation report on regulating crypto-assets, consisting of 18 high-level recommendations for global regulators to take into consideration when crafting and enforcing rules in this area. Of note, IOSCO makes clear that the proposed recommendations do not cover DeFi, which is being looked at by a separate IOSCO working group, with draft recommendations expected in Q3 2023 (and finalisation before year-end).

The Canadian Web3 Council in a joint effort with the European Crypto Initiative (EUCI) submitted a response to the consultation. See our full response. We are so grateful for the opportunity to partner with EUCI on this initiative, their support and contributions has been crucial in our ability to develop a global perspective and successfully weigh in on these important issues. CW3 will continue to expand its international coordination efforts.

In our response, we recommended a comprehensive and forward thinking strategy that is tailored to bringing crypto assets and CASPs into a regulatory perimeter that is suitable for a modern global financial, capital and crypto markets. CW3 and EUCI undertook a thorough review process, where we examined the multitude of crypto assets in the market today, each with its unique characteristics, risk profiles, and applications. Through a comparative taxonomy and mapping of these crypto-assets, our submission very explicitly addressed:

  1. The need for robust consumer and investor protection.
  2. The importance of transparent, traceable, and fair data in the crypto markets.
  3. The requirement for fostering cross-border cooperation to improve surveillance and crypto regulation.
  4. The need to establish flexible and principles-based regulatory frameworks, which will adapt to the evolving crypto markets and the underlying technologies.
  5. The push for measures to mitigate systemic risk and promote financial stability through the introduction of regulatory requirements for crypto-asset issuers, intermediaries, and service providers.
  6. The relevance of responsible disclosure to prevent conflicts of interest and advertising and/or endorsements practices for promoting crypto assets.
  7. The necessity to differentiate between the diverse crypto-assets and respect their individual risk profiles (especially differentiating between crypto-assets, financial instruments, stablecoins, loan mechanisms, and nonetheless, NFTs).

In our submission, we encourage all standard setters to work towards regulatory and supervisory harmonisation. We believe that an alignment of common interests towards regulation can have the following mutual benefits:

  • Harmonisation can help deter regulatory arbitrage (given the borderless nature of the crypto asset ecosystem); 
  • Help facilitate a coordinated response to address market abuse and any global incidents that may disrupt global markets and the financial system; and
  • Enable CASPs who are licensed in multiple jurisdictions to streamline their global operations and be more efficient. 

We support principles based regulations and urge policy makers to create a bespoke principles based regulatory framework for crypto assets and CASPs (e.g. like in MiCA) focused on regulatory outcomes. For example, we believe the unique characteristics, risk profile and use cases for Stablecoins (especially those that function as a payment instrument) require a bespoke regulatory framework and therefore does not fall under a securities regulatory framework. Existing regulations such as the EU’s MiCA have already established a separate and, arguably, better-suited regulatory regime for Stablecoins due to their specific systemic and consumer risks. The adoption of an approach that doesn’t recognise the specifics of this category of crypto-assets would risk creating a fragmented legal framework that differs significantly in its key outcomes, such as consumer and investor protection.

In addition to providing much needed legal clarity, a simplified legal framework would benefit crypto asset Users and the crypto asset ecosystem. We believe regulators should seek to achieve consistency in applying definitions both within and across agencies.” For example, whether the crypto asset type is considered a property, a commodity or a security. Complex legal frameworks create unnecessary regulatory burden for all ecosystem participants and can result in regulatory outcomes that do not always treat the rights of Users’ equally. With limited resources, regulatory burden also impacts regulators.

We encourage more open dialogue and collaboration between regulators and industry members across broad industry sectors before applying the concept of “same activity, same risk and same rules” approach to regulation. Technology may allow new market structures and novel business models to evolve and new regulatory approaches may be necessary. We encourage all regulators to remain open to this possibility.

The above is a snapshot of our response. See our full response here.

1 The term User in the context of this submission refers to a user of a platform and can include consumers, participants, investors etc.