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The International Organization of Securities Commissions (IOSCO), a cooperative group of global securities markets regulators, has published a wide-ranging research paper that includes findings on blockchain tech.
The 70-plus page paper, published Wednesday, [copy below] casts a wider net on the world of fintech, exploring areas such as peer-to-peer lending and robo-advisors. It comes just under a year after IOSCO declared its intention to study blockchain more closely.
Though largely a broad overview of the different approaches to blockchain seen in the past several years, the paper does outline some of the barriers to adoption facing the securities industry today as it explores use cases and tests prototypes.
One section of note focuses on the challenges related to smart contracts, a perhaps prescient warning given the collapse of The DAO – an ethereum-based smart contract that aimed to act as a funding vehicle – last summer.
The IOSCO report in particular highlights the risk of problems arising from both the automated nature of the tech as well as those developing the contracts themselves. As shown by the case of The DAO, an oversight during coding can have disastrous results.
The report argues:
“Smart contracts in theory reduce human error through automation. However, if an error occurs, it is more difficult to resolve as the operations are linked and embedded in the blockchain, and are self-executing according to the code written in the smart contracts. Also, smart contracts introduce a different type of human error: coding error.”
While the report itself doesn’t issue any specific recommendations to IOSCO’s global membership as it relates to blockchain, it more generally advocates for the use of stronger surveillance technology and cooperation among national-level agencies.
Such steps, the organization goes on to note, can help resolve some of the larger issues that impact the process of regulating technologies that transcend international borders.
“While firms can operate globally, regulation is overseen within national or sub-national borders,” IOSCO writes. “This may create challenges in terms of regulatory consistency, as well as cross-border supervision and enforcement. It also creates a potential risk of regulatory arbitrage.”
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