ALFI responds to IOSCO’s consultation report on policy recommendations for crypto and digital asset markets

ALFI responded to IOSCO’s Consultation Report on Policy Recommendations for Crypto and Digital Asset Markets on 21 July 2023.
The IOSCO report aims to align requirements for crypto and digital asset trading and custody with traditional financial markets globally. It includes 18 recommendations primarily for CASPs (crypto assets service providers) and covers 21 questions related to CASP activities in the crypto and digital asset investment lifecycle. IOSCO issued the Consultation Report on 23 May 2023.
ALFI provided its feedback to questions 2, 4, 12, 13, 14, 17 & 21. We would like to present the questions in full, together with a short summary of the main points of the respective answsers:
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Question 2 – Do respondents agree that regulators should take an outcomes-focused approach (which may include economic outcomes and structures) when they consider applying existing regulatory frameworks to, or adopting new frameworks for, crypto-asset markets?
ALFI supports an outcomes-focused approach for investor protection and fair information provision. They suggest adopting the „substance over form“ principle and recommend a clear definition of „crypto and digital assets“ to avoid redundancy with existing frameworks.
Question 4 – Do respondents agree that conflicts of interest should be addressed, whether through mitigation, separation of activities in separate entities, or prohibition of conflicts? If not, please explain. Are there other ways to address conflicts of interest of CASPs that are not identified?
ALFI advocates robust mitigation safeguards for conflict of interest and suggests segregation of roles between issuers and custodians. They propose excluding intra-group services from segregation requirements.
Question 12 – Do the market surveillance requirements adequately address the identified market abuse risks? What additional measures may be needed to supplement Recommendation 9 to address any risks specific to crypto-asset market activities? Please consider both on- and off-chain transactions.
ALFI aligns with MiCA regulation, recommends clarifying the impact of social media on asset valuation, and suggests guidance on responsibilities for smart contract implementation. They emphasize diverse risk considerations based on different DLT protocols.
Question 13 – Which measures, or combination of measures, would be the most effective in supporting cross-border cooperation amongst authorities? What other measures should be considered that can strengthen cross-border co-operation?
ALFI suggests information exchange and equivalent regulatory regimes for cross-border supervision. They seek clarification on the nature of shared information, especially at the entity and transaction levels.
Question 14 – Do the Recommendations in Chapter 7 provide for adequate protection of customer crypto-assets held in custody by a CASP? If not, what other measures should be considered?
ALFI recommends a clear responsibility regime for custodians in asset loss cases. They propose excluding money from the „client assets“ definition and advocate for alignment with MiCA principles.
Question 17 – Are there additional or unique technology/cyber/operational risks related to crypto-assets and the use of DLT which CASPs should take into account? If so, please explain.
ALFI suggests a risk-based approach to address diverse cyber/operational risks related to different DLT protocols. They emphasize the importance of clear roles for smart contract implementation and review.
Question 21 – Are there additional features of stablecoins which should be considered under Chapter 10? If so, please explain.
ALFI recommends a clear legal definition and categorization for stablecoins. They propose a distinct regulatory framework for stablecoins due to their unique risks and uses, emphasizing proportional regulation for stability and transparency.