Securities Regulators’ Association Calls for the Identification of Individuals Who Exercise Control Over Defi Platforms

The International Organization of Securities Commissions (IOSCO) has urged regulators seeking to understand decentralized finance (defi) arrangements to identify individuals who “exercise control or sufficient influence at the enterprise level.” The identification of such individuals potentially enables regulators to pinpoint “existing or potential regulatory touchpoints.”

Understanding the Defi Arrangement at the ‘Economic Reality’ Level

The International Organization of Securities Commissions (IOSCO) has urged its members seeking to regulate decentralized finance entities to first “understand the defi arrangement at the economic reality or ‘enterprise level.’” To achieve this, IOSCO, an association of securities regulators, encouraged its members to identify the individuals who “exercise control or sufficient influence at the enterprise level.”

According to the association’s final report which comes with policy recommendations for regulating the defi market, the identification of such individuals will enable regulators to pinpoint “existing or potential regulatory touchpoints.” In addition to reviewing publicly available information, regulators seeking to identify the so-called touchpoints should also consider engaging relevant persons like academics or researchers. The association added:

“Further, they could consider using available investigatory tools and techniques to gather additional information, including relevant information sharing arrangements with other authorities located within and outside their jurisdiction.”

Addressing Market Integrity and Investor Protection Concerns

In its 66-page report, IOSCO also urged regulators to understand the activities or services being offered by defi platforms and determine if they amount to the provision of financial services by the platform itself or persons linked with it. It also outlined the steps that regulators should take when seeking to find the ideal way of regulating entities controlled by decentralized autonomous organizations (DAOs).

Meanwhile, in the report’s summary, IOSCO claimed that all nine policy recommendations suggested in the report are aimed at addressing market integrity and investor protection concerns arising from the activities of defi platforms. The recommendations also help the association reach its goal of promoting greater consistency when it comes to the regulation and oversight of crypto asset markets, the report added.

As noted in IOSCO’s final report, the December 2023 recommendations are intended to build on the March 2022 report, which presented what the association characterizes as a “comprehensive description of the defi market.” Both reports are part of IOSCO’s ultimate ostensible goal of ensuring that market regulators around the world apply the “same activity, same risk, same regulation/regulatory outcome” approach to defi.

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