EU Set to Unveil Regulatory Framework for Crypto-assets

A leaked set of proposals indicates the European Commission is looking to introduce an EU-wide digital finance framework to hep regulate crypto-asset activities.

28 September 2020 Update – EU Unveils Digital Finance Strategy, Crypto-asset Framework

The European Commission is reportedly planning to unveil a regulatory framework to govern and regulate activities associated with crypto-assets across the EU.

A draft containing a set of proposals titled ‘Regulation of the European Parliament and of the Council on Markets in Crypto-assets (MiCA)’ was obtained and circulated by Coindesk.

It indicates that the Commission is currently weighing the pros and cons of introducing an EU-wide digital finance framework – along the same lines as the framework for securities markets known as MiFID –  to help regulate business activities related to crypto-assets.

The draft states that the proposals are part of a package of measures to further enable and support the potential of digital finance, innovation and competition while mitigating associated risks in the EU.

The measures include a new strategy for digital finance which aims to “ensure that the EU embraces the digital revolution and drives it with innovative European firms in the lead” and to make Europe “ready for the digital age”.

The package also includes a proposal for a pilot regime on DLT (distributed ledger technology) market infrastructures, a proposal for digital operational resilience, and a proposal to clarify or amend certain related EU financial services rules.

“Today, crypto-asset issuers and service providers cannot fully reap the benefits of the internal market, due to a lack of both legal certainty about the regulatory treatment of crypto-assets as well as the absence of a dedicated and coherent regulatory and supervisory regime at EU level,” the draft says.

The EU is expected to issue an all-encompassing set of regulations covering the trading or issuance of digital assets across the 27 member states – for implementation by 2024.

The ECB (European Commission Bank) has also recently said it was exploring the benefits and risks of a CBDC (central bank digital currency).

“We have a duty to play an active role in balancing the risks and benefits of innovation in payments, so that money continues to serve Europeans well,” said ECB president Christine Lagarde.

“The lack of payments integration in Europe means that foreign providers have taken the lead. This is not necessarily a concern, as long as foreign firms are accountable and subject to appropriate regulation and oversight, in accordance with the principle of same business, same risk, same regulation.”

The planned introduction of a public digital currency can be seen as a means of managing the risks of the digital transition, in order to maintain trust in payments, Lagarde said.

Under the new rules, Facebook’s Libra will likely be restricted, but not banned, according to MLex report.

European finance ministers have publicly made statements about banning the Libra in Europe, but privately they spoke of introducing regulations that enable – not inhibit – fintech innovations, particularly if they are homegrown, the report says.

It is suggested that large cross-border projects like Libra will be under the supervision of EU-level supervisors, while smaller scale initiatives will be overseen by national authorities.

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