Thursday, 17 September, 2020
The Digitial Regulator
Which crypto-asset regulation for the European Union?
Since 2018, several EU member states have developed and implemented more or less comprehensive regulations and regulatory frameworks for crypto-assets and cryptofinance, with the most prominent examples being France, Germany, and Malta. Since around the same time, the call for an EU-wide crypto-asset regulation has grown louder. The European Commission (EC) is now poised to issue the EU framework for markets in crypto-assets before the end of the year.
It is unclear to what extent the crypto-asset regulation that the EU is about to finalise will interfere with the advanced frameworks set up by member states and whether it will require adaptations. On balance, however, an EU-wide crypto-asset regulation is the only way to harvest efficiently and in a risk-controlled way the benefits of crypto-assets and cryptofinance services and products in the context of the European single market.
The last few weeks have witnessed noteworthy digital regulatory developments, such as the G30 welcoming stablecoins in the context of a strong official oversight, several central banks announcing new Central Bank Digital Currency (CBDC) initiatives, and the United States Securities Exchange Commission (SEC) expanding its definition of accredited investors.
Harmonising the regulation of crypto-assets across the EU
As early as in 2018, some EU member states began addressing the challenges and opportunities associated with crypto-assets and cryptofinance, and developed extensive regulatory frameworks, each with its own peculiarities. In the meantime, several influential EU institutions had been pressing for the introduction of an EU-wide or single-market crypto-asset regulation. Presently, the EU is expected to finalise a single-market crypto-asset regulation by the end of 2020. The proposed regulation will most likely replace the existing national crypto-asset frameworks.
An EU-wide crypto-asset regulation is largely welcome. The uncertainties surrounding it concern the adaptations it will require with regard to the highly comprehensive frameworks in place in some jurisdictions such as Germany, France, and Malta. The proposed EU framework will probably leave little room for interpretation for individual member states and will place crypto-assets within the existing financial market regulatory framework. Thus, the regulation of crypto-assets will be similar to that of traditional assets. On balance, irrespective of its degree of compatibility with the existing national frameworks, the regulation will enable efficient management of the opportunities and challenges associated with crypto-assets and cryptofinance.
Other noteworthy developments
CBDCs continue to dominate the regulatory landscape with pronouncements by the Bank for International Settlements (BIS)(BIS)link1, Banco do BrazilBanco do Brazillink1, Reserve Bank of AustraliaReserve Bank of Australialink1, and the US Federal Reserve Bank of BostonUS Federal Reserve Bank of Bostonlink1.
So far, the EU did not provide its single financial services market a regulation addressing crypto-assets and cryptofinance. The situation is now changing. However, the move may demand regulatory adjustments in countries that have already implemented comprehensive regulations. The resultant necessary adaptations should be kept to the minimum. The forthcoming single market regulation will allow member states to efficiently manage the opportunities and challenges associated with crypto-assets and cryptofinance.
Stablecoins and CBDCs have continued to dominate the developments in the digital regulatory space during the last few weeks.
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