The International Organisation of Securities Commissions (IOSCO) has recently published a final report on Investor Education on Crypto-Assets (hereinafter referred to as the “Report”) which aims to better safeguard investor protection within the crypto-asset markets. This shall be done through maintaining fair, efficient, and transparent markets whilst also addressing systematic risks.
As part of IOSCO’s ongoing prioritisation on crypto-assets, it also published the Policy Recommendations for Crypto and Digital Asset Markets Final Report and its Final Report with Policy Recommendations for Decentralized Finance. The IOSCO-established Fintech Task Force (hereinafter referred to as the “Task Force”) shall be implementing the recommendations emanating from these reports across IOSCO member-jurisdictions through the Implementation Working Group.
The Report provides educational materials and measures in accordance with the applicable regulatory framework and risks identified by jurisdictions, whilst promoting retail investors to make informed decisions after having assessed the risks of investing and transacting in crypto-assets.
In January 2024, the United States Securities and Exchange Commission approved 11 bitcoin exchange-traded products to trade their shares on national securities exchange. As a result, bitcoin saw its value climb to highs comparable to the 2021 bitcoin upsurge; this led to other crypto-assets also having an upsurge.
This is evidence of the market’s volatility; however, education and consumer protection shall be the tools employed by regulators to combat the volatility and unique risks the market faces whilst benefiting from its widespread interest.
Integrity and stability are of utmost importance to ensure trust within a retail market. Previous experience from 2022 is evidence of how damaging, the lack thereof, is on the market.
In 2022, the crypto-asset market was heavily impacted by high-profile failures and fraud from major market participants. Several now-bankrupt companies that offered financial products and services to crypto-asset holders allowed investors to either earn interest on deposited crypto-assets or secure loans with crypto-assets as collateral. These practices ultimately contributed to market instability and a significant downturn in the crypto sector.
This collapse was led by investors believing that crypto-asset services and products were bank-like services and were owed the same level of security. It led to the loss of billions within the market. Since then, it is being made evident that a reform by way of investor education and protection is required to regain trust in the market.
The Task Force has signalled the importance of the regulator’s role in educating retail investors for the development of the retail market.
The Maltese Financial Services Authority (MFSA) strives to better facilitate retail investors’ education and protection to enable growth within the retail market. Back in 2018 it devised the Virtual Financial Assets Framework with the aim of supporting innovation and technology accompanied by investor protection, financial market integrity, and financial stability for the growth of the retail market.
In this regard, the MFSA has played a pro-active role in establishing itself as a progressive regulator which understands the realities and risks of crypto-assets, its underlying technology, as well as the importance of ensuring investors are protected from the allure of possible high returns which are often touted in relation to crypto-asset investments.
The Virtual Financial Assets (Amendment) Regulations enacted earlier this year implemented amendments to the Maltese Virtual Financial Assets Act to align the Maltese legal framework with the Markets in Crypto-Assets Regulation (MiCA). This is an important step in the right direction to re-instating confidence in the crypto-asset retail market by virtue of maintaining integrity and stability. This also helps ensure that the Maltese market is one which is regulated by a pro-active regulator facilitating growth.
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Author: Neil Gauci