The nine policy recommendations aim to address "market integrity and investor protection concerns" arising from DeFi by supporting "greater consistency of regulatory frameworks and oversight" in member jurisdictions.

The recommendations cover six key areas:

1. understanding DeFi arrangements and structures;

2. achieving common standards of regulatory outcomes;

3. identification and management of key risks;

4. clear, accurate and comprehensive disclosures;

5. enforcement of applicable laws; and

6. cross-border cooperation.

The DeFi policy recommendations are complementary to the Policy Recommendations for Crypto and Digital Assets (CDA) Markets published in November 2023.

The two sets of IOSCO recommendations have been developed in accordance with IOSCO’s Cryptoasset Roadmap 2022/2023, and the interoperability between the two sets of recommendations is detailed in the Umbrella Note which has been published alongside the DeFi Final Report.

These recommendations "elaborate the regulatory expectations, either through application of existing rules or development of new rules, depending on the jurisdiction, to address the key areas of harm observed in these markets."

The 18 recommendations, which are principles-based and outcomes-focused and aimed at the activities of cryptoasset service providers, cover six key areas:

1. conflicts of interest arising from vertical integration of activities and functions;

2. market manipulation, insider trading and fraud;

3. custody and client asset protection;

4. cross-border risks and regulatory cooperation;

5. operational and technological risk; and

6. retail distribution.

The proposed recommendations are "principles-based and outcomes-focused" and are aimed at the activities performed by cryptoasset service providers (CASPs).

The recommendations cover a range of activities involving CASPs from offering, admission to trading, ongoing trading, settlement, market surveillance and custody, as well as marketing and distribution (covering advised and non-advised sales) to retail investors. The proposed recommendations do not cover activities, products or services provided in decentralized finance.

The proposed recommendations also cover the need for enhanced cooperation among regulators. They aim to provide a "critical benchmark" for IOSCO members to "cooperate, coordinate and respond to cross-border challenges in enforcement and supervision", including regulatory arbitrage concerns, that arise from "global cryptoasset activities conducted by CASPs that offer their services, often remotely, into multiple jurisdictions".

Deadline for comments is 31 July 2023.