Global Correspondence

GFMA and GBBC Submit Joint Response to IOSCO DeFi Consult

GFMA with the GBBC submitted a joint response to the IOSCO Consultation Report on Policy Recommendations for Decentralized Finance (DeFi).

The response includes four foundational pillars that IOSCO leadership and members should aim to address in finalizing its DeFi Recommendations:

Pillar I: IOSCO Should Clearly Define What Constitutes a “DeFi Protocol” or “DeFi Arrangement” by Distinguishing General Connectivity Technology or Infrastructure Utilizing a Peer-to-Peer Communication Protocol (Whether Involving DLT or Otherwise) from an Application Designed for Use by End-Customers/Investors to Engage in Transactions Involving Financial Instruments or Services Communicated or Recorded Through such Protocol.

Pillar II: IOSCO Should Recommend that Regulators Follow Approaches Consistent with Existing Rules and Guidance to Determine Which Responsible Person for a DeFi Arrangement Should Be Registered or Licensed and What the Scope Is for Their Regulatory Responsibilities. Regulatory Responsibilities Should Be Tailored to the Specific Nature and Extent of Risks Posed by the Particular DeFi Arrangement, in a Manner that Does Not Lead to Regulatory Arbitrage or Regulatory Barriers to Entry.

Pillar III: IOSCO Should Exercise Caution Before Recommending that Regulators Impose Requirements on the Development, Maintenance, or Use of a Technology that Would Necessitate Involvement by an Intermediary or FMI Where One Otherwise Need Not Be Involved.

Pillar IV: IOSCO Should, in Consultation with Market Participants, Foster the Development of Best Practices for Intermediaries Using DeFi Protocols and Arrangements in Order to Address Threats to Operational or Market Integrity and to Promote Retail Customer Protection.

In addition to the pillars, the response includes proposed revisions to the text of the specific Recommendations in Annex A.

– 19 October 2023 –

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