13 November 2018, Strasbourg
Madam Chair, Honourable members,
There is continued excitement, and speculation, on Initial Coin Offerings and crypto-assets. To the proponents, they present a new paradigm for the internet and blockchain-based value transfer systems that can overcome shortcomings inherent in systems of correspondent banking between intermediaries. They also offer enormous potential for simple and fast capital raising, and the figures are quite impressive:
Widely quoted estimates are that in this year-to-date, more than US$ 21 billion was raised in over 900 Initial Coin Offerings globally. And this is more than 3 times the amount raised in 2017.
Sceptics believe that crypto-assets and Initial Coin Offerings are not serious. That they are vehicles for fraud and manipulation, tools for speculation, manipulation and money laundering.
For the Commission crypto-assets and Initial Coin Offerings present both opportunities and risks. It is still early days and the technology has a long way to go. But, we believe that crypto-assets are here to stay.
The underlying blockchain technology is very promising for our digital economy, which we should embrace and support.
Crypto-assets cannot be separated from blockchain technology. Blockchains, as opposed to the much broader category of distributed ledger technology, are chains of crypto-asset transactions. Pursuing the opportunities of blockchain implies that we take an interest in crypto-assets, both in terms of the advantages they offer, but also to address risks they may present.
The Commission was closely involved, and fully subscribes to, the Financial Stability Board’s assessment, that for the time being, crypto-assets do not pose a financial stability risk. This may however, change, if the market grows quickly.
The market remains volatile and presents significant investor protection and market integrity risks. Warnings to investors about risks may not be sufficient. Rules of the road are necessary, but not only to protect investors and increase market integrity, but also to provide legal clarity and certainty for a legitimate crypto-asset eco-system.
We have already expanded the scope of EU anti-money laundering and anti-terrorism finance legislation to crypto-asset exchanges and wallet providers, through the recent 5th Anti-Money Laundering Directive.
The main question for financial regulators is whether crypto-assets are financial instruments, and are therefore covered by financial regulation?
The second question is whether that regulation is suitable and addresses the risks, while supporting and enabling the opportunities?
There are no simple answers to these questions. Whether the current EU financial regulatory framework applies to crypto-assets on the one hand depends on the specific characteristics of each crypto asset.
On the other hand, it largely depends on how EU law is applied in national law and supervision.
Financial regulation and definitions of financial instruments were developed before the age of crypto-assets and ICOs. It is therefore often not clear whether they are covered or not, even if they present similar features to financial instruments.
We are assessing this together with the European Supervisory authorities, which are expected to present their conclusions by the end of the year.
Without jumping to conclusions, the Commission notes that some Member States have already established that existing law is not applicable or that it is not suitable. And they are developing sui generis.
Other Member States consider that at least some crypto-assets fall within existing definitions of financial instruments. But even in these cases applying existing rules raises complex practical and enforcement questions.
Crypto-assets, that do not meet the definition of a financial instrument under EU or national law, also present investor protection and market integrity issues.
So this legal twilight zone is not good for the Single Market, it is not good for developing a potential new source of market-based finance and it is not good for investor protection and market integrity. Following the conclusions of European Supervisory Authority`s legal mapping exercise, the Commission will assess the possible way forward.
Thank you and I look forward to hearing the views of this assembly on this important topic.