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European Union proposes new legislation on crypto assets

  • European Union has proposed a digital financial package and new legislation for crypto exchanges and stablecoin issuers.
  • Stablecoin issuers must publish Whitepaper and plans for the use of their funds.

European Union has adopted a “Digital Financial Package” with the aim of creating a single market for digital financial services and “modern payments” in the region. In doing so, European countries will boost its “competitiveness and innovation” and provide greater financial and payment instruments to its consumers, while trying to reduce risk in that market.

The package has been announced by the European Commission and consists of measures in 5 areas: a digital finance strategy for Europe, a retail payment strategy, a proposal for a European legal framework on digital operational resilience, and perhaps most importantly, the first European proposal for new legislation for crypto assets called MiCA.

Is the future of payments in Europe digital?

The Regulation on Markets in Crypto Assets (MiCA) recognizes the need to provide legal clarity for crypto assets and its issuers to drive innovation in the region. At the same time, the legislation provides protection and “financial stability” for investors. In that sense, the proposal indicates the new requirements that crypto assets operators will have to comply with:

The new rules will allow operators authorised in one Member State to provide their services across the EU (“passporting”). Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer.

The above applies to entities with crypto assets-related services (custody services, crypto exchanges, among others) and to issuers of stablecoins. According to the regulation, crypto exchanges must have a physical presence in the European Union and must obtain prior authorization from a “competent national authority” to start providing their services. In addition to the above requirements, providers of crypto services must pass a test on their technological capabilities. This will ensure that consumers are protected against cyber theft and other security breaches.

In addition, issuers of stablecoins will be obliged to publish a whitepaper in which they must provide “all relevant information” on their crypto asset. Also, issuers will have to publish a detailed description of their operations, plans on how the project will use their funds, liabilities, and project risks, among others. The executive body behind the crypto asset will be prohibited, under the new legislation, from issuing “misleading” statements.

European pilot program for distributed ledger technology

In the proposed regulation, the institution states that they will conduct a “pilot regime” for a market infrastructure based on distributed ledger technology. Therefore, a “sandbox” model will be implemented in 2021/2022 to make exceptions to the existing regulatory rules on crypto assets in certain regions. By doing so, regulators and technology experts will be able to “test innovative solutions and identify obstacles” together with companies and crypto service providers, as te report states:

The European Blockchain Partnership is planning a pan-European regulatory sandbox in cooperation with the European Commission for use cases in the EBSI and outside of EBSI, including for data portability, B2B data spaces, smart contracts, and digital identity (yelf-sovereign identity) in the health, environment, mobility, energy and other key sectors.

As reported by the CNF, a recent report indicates that the European Union could introduce a new legal framework for digital and crypto assets by 2024. Such a legal framework is expected to benefit companies like Ripple and its payment solutions based on distributed ledger technology.

The measures taken by the European Union will be, as stated by the Vice President of the European Commission, Valdis Dombrovskis, crucial for the post-pandemic recovery of the region. On the new legislation, Former Goldman Sachs employee Raoul Pal said the document “highly bullish”. Pal added the following:

This EU paper on the future of Digital Assets in Europe is hugely bullish. For those of you who fear government bans, this shows that government are going the opposite direction and embracing them (but with some regulation).

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