Syed Rahman and Ulrich Schmidt examine the criticisms made by the International Organization of Securities Commissions.
There is much more that countries should be doing to tackle crypto-related risks.
That is according to the International Organization of Securities Commissions (IOSCO); the international body that brings together the world's securities regulators and is recognised as the global standard setter for financial markets regulation.
IOSCO has said that countries need to be better at monitoring risks in crypto assets and in sharing regulatory information. According to it, a review of how 20 countries implemented its policy recommendations for crypto and digital asset markets showed that gaps were apparent.
The countries involved in the review included the UK, Switzerland, Australia, France, Hong Kong and Japan. The members of the team that conducted the review included experts from relevant national agencies, including the UK’s Financial Conduct Authority, Germany's BaFin and the US Securities and Exchange Commission.
In a statement, IOSCO said the review was “a call for action for jurisdictions to take steps to monitor the existing and emerging risks’’. It added that countries have much more to do to implement the 18 policy recommendations it published in 2023 to make crypto regulation more consistent.
Failings
IOSCO emphasised countries’ failings in implementing its recommendation for enhanced regulatory cooperation across borders. It said that gaps existed largely because some countries found legal barriers to this.
It also highlighted the fact that eight countries have not yet published measures to implement IOSCO’s recommendation on governance and disclosure of conflicts of interest. Three countries have not published implementation measures for at least one key aspect of IOSCO's recommendation regarding fraud and market abuse, with difficulties caused by limits on local regulators’ enforcement authority beyond crypto asset service providers.
The watchdog found shortcomings when it came to other activities, including:
- securing the private keys that grant access to crypto assets
- handling of client monies and assets
- disclosure of custody and safekeeping arrangements
- client asset reconciliation (comparing internal records to an external source to ensure client assets are accounted for)
- securing client money in countries where frameworks were lacking
- retail client disclosure and suitability tests when crypto asset firms carry out client orders
Catch-up
The rate at which the crypto market is developing makes it hard for countries and their regulators to ensure they are up to speed with crypto regulation and tackling crypto crime. Regulators and enforcement agencies are constantly playing catch-up and are struggling to keep abreast of the market to ensure regulations are fit for purpose.
International cooperation in the crypto world is particularly difficult, as countries have different approaches to crypto and have advanced to different levels with their respective approaches. Certain countries, such as the USA, have recently emphasised innovation and less rigid enforcement in order to strengthen the industry – and as many crypto-related companies are located in the US, this approach makes sense. The UK and European Union (EU), however, have emphasised the need for safety and regulation. This approach is equally sensible but may hamper innovation, as crypto companies may be more inclined to base themselves elsewhere as a result of the UK and EU’s stricter, more stringent regulation.
However, the UK and US authorities are set to announce a comprehensive digital asset cooperation agreement. This can be seen as an indicator that although countries may favour different approaches, efforts are being made to address enforcement and information-sharing issues and risks.
