European Commission proposes new crypto regulation

The European Commission has proposed a new package regarding digital finance. For the first time a draft includes regulation on crypto-assets, which is intended to create legal certainty in the European Union (EU).

According to a press release, the European Commission this week presented a new legislative proposal to regulate digital financial products and crypto-currencies. The draft legislation, called Regulation on Markets in Crypto Assets (MICA), aims to clearly define what a crypto asset is and what subcategories exist. Digital assets that were previously unregulated would also be included in the legislation.

The Digital Finance Strategy

More and more consumers around the world, and specifically in the European Union, are starting to use digital financial services for a wide variety of things. Meanwhile, there are many successful FinTech companies in Europe, but even the traditional financial sector already offers some digital alternatives.

“The future of finance is digital. We saw during the lockdown how people were able to get access to financial services thanks to digital technologies such as online banking and fintech solutions. Technology has much more to offer consumers and businesses and we should embrace the digital transformation proactively, while mitigating any potential risks.” – Valdis Dombrovskis, Executive Vice-President of the European Commission

The Commission identifies four main objectives of the Digital Finance Strategy:

  • Tackling fragmentation in the Digital Single Market for financial services
  • Ensuring that the EU’s regulatory framework facilitates digital innovation in the interest of consumers and market efficiency.
  • Creating a European financial data space to promote data-driven innovation, building on the European Data Strategy.
  • Addressing challenges and risks associated with the digital transformation, in particular to promote resilience, data protection and appropriate prudential supervision.

Regulation on Markets in Crypto Assets

The Commission has proposed legislation for crypto-assets for the first time. It defines them as “digital representation of values or rights that can be stored and traded electronically”. The proposal includes legislation for issuers of various crypto-assets, exchanges, custody services, and token holders.

“This will provide legal clarity and certainty for crypto-asset issuers and providers. 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.” 

Special attention is paid by the Commission to so-called stablecoins, Fiat-bound crypto currencies such as Tether. These would be subject to stricter requirements in terms of equity, investor rights and supervision.

The latest proposal must be approved by EU governments and the European Parliament before it can come into effect. If adopted, the European Union would become the largest and most important region with full regulation on crypto-currencies.

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