IOSCO Fintech Task Force Panel – The Current State of Play in Regulating Crypto-Asset Markets, AI and Financial Asset Tokenization
IOSCO Fintech Task Force Panel – The current state of play in regulating crypto-asset markets, AI and financial asset tokenization
Members from the IOSCO Fintech Task Force (FTF) return to the Singapore FinTech Festival for the third year running for a stocktake on their work, focussing on the regulation of crypto-asset markets, AI and financial asset tokenization.
1. A background on IOSCO
IOSCO's FTF focusses on regulating fintech and crypto assets, working with global regulators to shape policy.
- Past focus on crypto and digital assets: Over the last two years, FTF produced recommendations on crypto and DeFi, with 18 key recommendations released in 2023.
- Expansion into new technologies: The FTF now addresses emerging technologies like AI and tokenization, forming specialised work groups to tackle these areas.
2. Implementation
The next phase of IOSCO’s work focuses on monitoring the implementation of its crypto and DeFi recommendations across jurisdictions, addressing global variance in regulation, and supporting capacity building for more effective regimes.
- Implementation of crypto recommendations: Most countries are implementing the 18 recommendations on crypto regulation, but approaches vary widely depending on existing regulatory frameworks.
- Cross-border cooperation and market concerns: Collaboration among regulators and the industry is crucial, especially to address market abuse, fraud, and manipulation.
- Jurisdictional deep dives and capacity building: IOSCO is conducting deep dives into specific jurisdictions to identify best practices and areas for improvement, with a focus on capacity building for stronger regulatory regimes.
3. AI
As AI becomes more accessible, regulators are exploring its risks and potential in financial services. The focus is on safeguarding market integrity, investor protection, and managing systemic risks from emerging AI technologies.
- AI's mainstream adoption in finance: Generative AI (GenAI), like ChatGPT, has taken AI from niche use to widespread adoption in financial services, increasing productivity and enhancing customer interactions.
- Risk concerns: Key concerns include AI's unpredictability, data quality, explainability, and potential for malicious use, such as scams and market manipulation.
- Regulatory focus: Regulators are focusing on balancing AI’s benefits with its risks, developing governance frameworks, and ensuring transparency, particularly around AI decision-making processes in financial products.
4. Tokenization
IOSCO's focus on tokenization in the capital markets is about adapting traditional securities like bonds to the digital space using blockchain technology. The challenge is to understand how these digital assets fit within existing regulatory frameworks and how to manage the risks associated with tokenized securities.
- Tokenization in capital markets: The tokenization of traditional assets is gaining traction. It involves using blockchain to represent securities such as bonds and stocks in a digital format, enabling easier distribution and issuance.
- Regulatory challenges: One of the primary concerns is ensuring that existing regulations apply to tokenized assets, particularly around issues like asset segregation, smart contract security, and legal risks related to token ownership.
- Ongoing work: IOSCO is conducting outreach and collaborating with industry stakeholders to assess risks, improve understanding, and provide guidelines for regulators. It aims to ensure that tokenization preserves market integrity, investor protection, and financial stability while fostering innovation.
- Global coordination: As tokenized assets are inherently cross-border, international cooperation is critical to ensure consistent regulatory standards and prevent arbitrage.
The future of tokenization, AI, and crypto regulation looks promising as long as industry and regulators collaborate closely. By aligning global standards and working together, the IOSCO FTF hopes to foster responsible innovation while ensuring the safety and integrity of financial markets.
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Speakers:
- Matthew Long, Director, Payments and Digital Assets, Financial Conduct Authority
- Merion Anggerek, Director & Head (Capital Markets Policy Division), Markets Policy & Consumer Department, Monetary Authority of Singapore
- Valerie Szczepanik, Director, US SEC's Strategic Hub for Innovation and Financial Technology (FinHub), US Securities and Exchange Commission
- Abigail Ng, Executive Director, Monetary Authority of Singapore