​​​​Crypto-assets​

• Regulatory policy should take into account the various purposes/functions of crypto-assets. Depending on the individual function/purpose of a crypto-asset, different aspects have to be considered. While e.g. payment tokens may raise questions on depositor and consumer protection as well as payment service issues, investment tokens may raise questions on investor protection.
• From a prudential point of view, it would be better to establish categories indicating how much risk is associated with the specific crypto-asset and to link these categories to existing asset classes where possible. We agree with the Basel Committee that it makes sense to classify crypto-assets on the basis of their different functions. The three major categories are payments, securities and utility access. Within these categories, a further distinction should be made as to whether or not the crypto-asset is backed by a conventional asset. ESBG believes that the prudential treatment of crypto-assets should be designed by adapting current prudential regulatory treatment to these assets; designing a whole new framework would not be necessary.
• Swift adoption of the MiCA regulation proposal and the proposal regulation on a pilot regime for market infrastructures based on distributed ledger technology. Policymakers are encouraged to deliver on the proposal and allow a smooth adoption and implementation of the proposed measures. ESBG would continue its contribution to the industry and public debate.​

Identified Concerns

ESBG supports the establishment of an EU regulatory framework for crypto-asset markets as a key priority, especially as some crypto-assets are currently not covered by EU legislation. Since crypto-assets are of a digital/virtual nature, policymakers need to consider the legal nature of the issuer (private vs. public), the difference between asset and technology, and the possible stabilisation mechanisms behind the cryptoasset (e.g. in case of stablecoins).​

Why Policymakers Should Act

ESBG is concerned by the abuse of retail investors’ trust and the emergence of highways circumventing policy frameworks which were carefully crafted over the last decades. A general framework for both the definition and the classification of crypto-assets should be set-up through regulatory measures in order to ensure that a scope expansion of crypto-assets is done in a harmonized manner. Regulatory measures provide a level playing field for all market participants involved.

European policymakers should try to preserve and extend to the crypto-assets market the recent advances and improvements achieved in market integrity, investor and data protection, and anti-money laundering.

Background

Since the publication of the FinTech Action Plan in March 2018, the European Commission has been closely looking at the opportunities and challenges raised by crypto-assets and evaluating the suitability of the existing financial services regulatory framework on crypto-assets.

In January 2019, the EBA and ESMA reports pointed out that while some crypto-assets fall within the scope of EU legislation, effectively applying it to these assets is not always straightforward. Moreover, there are provisions in existing EU legislation that may inhibit the use of certain technologies, including DLT. At the same time, the EBA and ESMA have pointed out that most crypto-assets are outside the scope of EU legislation and hence are not subject to provisions on consumer and investor protection and market integrity. Finally, a number of member states have also legislated on issues related to crypto-assets which are currently not harmonised.

In September 2020, the European Commission proposed a comprehensive framework that will protect consumers and the integrity of previously unregulated markets in crypto-assets. The ‘Regulation on Markets in Crypto Assets’ (MiCA) will boost innovation while preserving financial stability and protecting investors from risks. 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. Issuers of significant assetbacked crypto-assets – so-called global ‘stablecoins’ – would be subject to more stringent requirements, such as in terms of capital, investor rights and supervision.

In addition, the European Commission proposed a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. The pilot regime represents a so-called ‘sandbox’ approach – or controlled environment – which allows temporary derogations from existing rules so that regulators can gain experience on the use of distributed ledger technology in market infrastructures, while ensuring that they can deal with risks to investor protection, market integrity and financial stability. The Commission is also proposing some related amendments where current legislation presents clear issues to the application of distributed ledger technology in market infrastructures

These proposals respond to most of the ESBG priorities and if adopted will ensure a level playing field that has been one of ESBG main demands for the last years.