How the EU will regulate the cryptocurrency market

How the EU will regulate the cryptocurrency market

The European Commission has announced a plan to regulate cryptocurrencies, all the details

Reduce risks for investors while providing legal certainty for companies that issue cryptocurrencies. This is the objective of the legislative proposals on crypto-assets, contained in the new legislative package launched by the EU.

On Thursday, the European Commission took action on digital transactions, with a proposal that aims to create a fully integrated retail payment system in the EU, which includes instant cross-border payment solutions.

For the first time, the EU executive has proposed new legislation on crypto-assets (the digital representation of values ​​or rights that can be stored and exchanged electronically).

"The future of finance is digital," said Valdis Dombrovskis, executive vice president of the European commission, in a statement. “During the lockdown, many people switched to accessing banking and other financial services online. Many others have made contactless payments. The development of better financial products for consumers and the opening of new financing channels for companies will help the recovery ”.

According to Dombrovskis, the measures are not aimed at stifling innovation, but at establishing clear rules that allow new technologies to thrive.

In this way Brussels tries to relaunch the initiative of creating a capital markets union.


The “regulation on crypto-asset markets will stimulate innovation while preserving financial stability and protecting investors from risk. This will ensure clarity and legal certainty for the issuers and providers of crypto-assets.

One of the objectives of the new legislation is for the EU to reduce "market fragmentation".

The new plan will allow cryptocurrency companies authorized by one of the 27 EU countries to provide their services in all other member states. The so-called "passport system".


The new legislation intends to reduce risks for investors, while also giving legal certainty to cryptocurrency issuers.

Safeguards include capital requirements, safekeeping of assets, mandatory complaint handling procedure available to investors, and investor rights vis-à-vis the issuer.

Issuers of significant asset-backed crypto-assets (the so-called global “stablecoins”) will be subject to more stringent requirements (eg in terms of capital, investor rights and supervision).

The new rules will also prohibit market abuse in secondary markets for crypto assets previously not covered by financial services regulation: specific measures are foreseen to prevent market abuse, such as insider trading and manipulation.

Issuers must publish a document that includes all relevant information on the specific cryptoasset: detailed description of the issuer, the project and intended use of the funds, conditions, rights, obligations and risks.


The Commission also proposes a pilot scheme for market infrastructures which intend to allow the trading and settlement of transactions in financial instruments in the form of crypto-assets.

The pilot scheme constitutes a so-called "sandbox" approach – that is, a space for experimentation in a controlled environment – which allows temporary derogations from the current regulations to allow regulators to gain experience on the use of distributed ledger technology in market infrastructures, ensuring at the same time being able to address the risks to investor protection, market integrity and financial stability.


The proposed rules concern not only entities that issue cryptocurrencies and cryptoassets in general, (such as
Facebook with Libra), but also all companies that provide services around this activity such as companies that hold clients' crypto-assets in custody ("custodial portfolios"), entities that allow customers to buy or sell crypto assets for fiat money (not tied to the price of a commodity like gold or silver, but to trust in the authority that issues it) or other cryptoassets ("cryptoasset exchanges"), cryptoasset platforms and many others.


Cryptocurrency service providers (and in particular trading platforms, exchanges and custody wallet providers) will need to have a physical presence in the EU and will be subject to prior authorization from a competent national authority before starting business. .

They will be subject to capital requirements, governance standards and the obligation to segregate their clients' assets from their own.

These cryptocurrency service providers will also be subject to specific requirements to avoid the risks of cyber theft and cyber attacks.


The regulatory framework also establishes the requirements for the emerging category of so-called "stablecoins", which are divided into electronic money 'tokens' and 'tokens' with reference to assets.

Stablecoins like Facebook's Libra project are so called because they are tied to existing currencies, giving them stability.


Compliance with all these requirements will be checked by the competent national authorities and the European Banking Authority (EBA), an EU agency based in Paris.


The new rules will therefore have implications for Libra, the digital currency project announced by Facebook last year. The launch on the digital market is on standby pending regulatory clarification . In Facebook's original project, Libra would have been backed by a reserve of multiple currencies, but since then the Menlo Parl giant has changed course following a backlash from regulators, worried about the possible repercussions on the stability of financial markets.


In addition to the necessary legislative update to keep up with the latest developments in artificial intelligence and blockchain, the European executive aims to promote the sharing of financial data while maintaining EU standards on privacy. And therefore to defend the rights of consumers from the waiver of guarantees and protections often contained in the 'take or leave' forms of terms and conditions of digital services.


A step forward therefore in the regulation of the sector, but the road is still long. Before becoming law, the proposal will have to be approved by EU governments and the European Parliament.

"The legislative process will take time, at least a year, probably more, depending on how much priority is given by both the Member States and the European Parliament." European Commission Executive Vice President Valdis Dombrovskis told CNBC .

German Finance Minister Olaf Scholz pledged Thursday to accelerate EU financial reforms to regulate cryptocurrency, Reuters reported. Emphasizing that they could help fuel the economic recovery.

This is a machine translation from Italian language of a post published on Start Magazine at the URL on Fri, 25 Sep 2020 05:45:07 +0000.