IOSCO requested comments on key considerations for the regulation of crypto-asset trading platforms ("crypto exchanges").

In a new report, IOSCO defines "crypto assets" to include any asset, including crypto currency and most initial coin offerings, the value of which is linked to cryptography or the use of distributed ledger technology. IOSCO said that crypto exchanges may perform, in addition to the activities of a market, the functions that are more commonly associated with custodians, transfer agents and clearing corporations.

In the report, IOSCO considered issues and risks related to trading, custody, clearing and settlement, cybersecurity, and operational soundness as well as issues of regulatory jurisdiction (i.e., whether the traded assets are "securities").

Specifically, IOSCO described key considerations for regulatory authorities on:

  • access;

  • safeguarding participant assets;

  • "prudential mechanisms" to bolster crypto exchange operations;

  • the extent to which conflicts of interests exist due to the exchange's internal structure;

  • the extent to which information about how the exchange functions is available to its participants;

  • the applicability of rules related to market abuse and the capacity of the exchange to prevent market abuse;

  • the efficiency of "price discovery"; and

  • cyber security.

In addition, IOSCO offered several recommended measures for regulatory authorities to use to address these considerations and associated risks. These "tool-kits" are regulatory assessments and include reviewing the exchange's policies with respect to access criteria; reviewing the arrangements in place to compensate participants in the case of a loss of assets; considering whether to impose capital requirements on the exchange; and reviewing the steps taken by the exchange to alleviate conflicts of interest.

Comments on the Consultation Report must be submitted by July 29, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.