FR02/2020 Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms

Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms Final Report BOARD OF THE INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS FR02/2020 FEBRUARY 2020 ii Copies of publications are available from: The International Organization of Securities Commissions website www.iosco.org © International Organization of Securities Commissions 2020. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. iii Foreword On May 28, 2019, the Board of the International Organization of Securities Commissions (IOSCO) published a Consultation Report, Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms (Consultation Report), and encouraged the public to comment on the identified issues, risks, key considerations and related toolkits by July 29, 2019. In response to the request for comments, twenty-eight comment letters were received and were carefully considered by IOSCO in the preparation of this Final Report, Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms (Final Report). Annex C describes and addresses the major comments. iv Contents Chapter Page 1. Executive summary 1 2. Introduction 3 3. Regulatory Approaches to Crypto-Asset Trading Platforms 6 4. Key Considerations 10 5. Cross Border Information Sharing 26 6. Conclusion 28 Annex A 29 Annex B 37 Annex C 45 1 Chapter 1 - Executive Summary The emergence of crypto-assets is an important area of interest for regulatory authorities, including those with authority over secondary markets and the trading platforms that facilitate the secondary trading of crypto-assets (Crypto-asset Trading Platforms or CTPs). The aim of this Final Report is to assist IOSCO members in evaluating the issues and risks relating to CTPs. Published in February 2017, the IOSCO Research Report on Financial Technologies (Fintech),1 (the Fintech Report) discussed distributed ledger technologies (DLT) and the role of tokenization of assets and fiat money. In the Fintech Report, IOSCO noted that “Tokenization is the process of digitally representing an asset, or ownership of an asset. A token represents an asset or ownership of an asset. Such assets can be currencies, commodities or securities or properties.” For this Final Report, crypto-assets are a type of private asset that depends primarily on cryptography and DLT or similar technology as part of its perceived or inherent value, and can represent an asset such as a currency, commodity or security, or be a derivative on a commodity or security. Where a regulatory authority has determined that a crypto-asset or an activity involving a crypto-asset falls within its jurisdiction, IOSCO’s Objectives and Principles of Securities Regulation2 (IOSCO Principles) and the Assessment Methodology3 (the Methodology) provide useful guidance in considering the novel and unique issues and risks that arise in this new market. The IOSCO Principles and Methodology also facilitate the promotion of IOSCO’s core objectives of securities regulation,4 which include protecting investors and ensuring that the markets are fair, efficient and transparent. The Final Report, prepared by Committee 2 on the Regulation of Secondary Markets (Committee 2),5 is based in part on the information gathered by Committee 2 related to the operation of CTPs and the regulatory approaches that are currently applied or are being considered in Committee 2 member jurisdictions or in member jurisdictions that participate in IOSCO’s ICO Consultation Network (ICO Network).6 1 https://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf 2 Published at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf 3 Published at: https://www.iosco.org/library/pubdocs/pdf/IOSCOPD562.pdf 4 In the IOSCO Principles and Methodology, the words “securities markets” are used, where the context permits, to refer compendiously to the various market sectors. In particular, where the context permits, they should be understood to include reference to the derivatives markets. The same applies to the use of the words “securities regulation”. (See IOSCO By-Laws, Explanatory Memorandum). 5 Chaired by Ontario, C2 members include representatives of regulatory authorities from: Abu Dhabi, Australia, Brazil, Canada (OSC, AMF Quebec, IIROC), China, Dubai, France, Germany, Hong Kong, India, Ireland, Italy, Japan, Republic of Korea, Kuwait, Malaysia, Mexico, The Netherlands, Nigeria, Romania, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States of America (CFTC, S