This article has been republished with permission from Binance News.
According to CoinDesk, the International Organization of Securities Commissions (IOSCO) has published a report stating that governments should determine who is responsible for decentralized finance (DeFi) applications and regulate them in the same way as traditional financial market players. IOSCO, whose members include the U.S. Securities and Exchange Commission and the U.K. Financial Conduct Authority, is concerned that innovative financial applications could be easily manipulated and questions the idea that there is no one in control to hold legally accountable.
DeFi, which allows lending or trading to occur using algorithms, tokens, and decentralized autonomous organizations (DAOs), challenges many of the principles of regular financial regulation, which relies on identifying a central person or company responsible for maintaining market fairness and protecting investors. However, IOSCO officials seem to believe that the decentralization of DeFi is an illusion and are urging national regulators to take action.
IOSCO’s recommendations state that national regulators should identify who is truly in charge and assign them obligations to uphold investor protection and market integrity, similar to what is done in traditional finance (TradFi). Depending on how existing TradFi rules are written, DeFi may be noncompliant or simply outside of scope, but officials warn that pseudonymity and opaque governance may make it more difficult to detect collusion or conflicts of interest, leading to risks such as front-running, hacks, or excessive leverage. The report comes shortly after the Financial Stability Board and International Monetary Fund jointly called for a comprehensive, global approach to crypto regulation, as leaders from the world’s twenty largest economies gather for a summit in New Delhi, India.