The EU strongly supports a pan-European framework and hopes to avoid legal and regulatory fragmentation. With the view to increase investments and to ensure consumer and investor protection, the Commission on 24 September adopted a comprehensive package of legislative proposals for the regulation of crypto-assets, updating certain financial market rules for crypto-assets, and creating a legal framework for regulatory sandboxes of financial supervisors in the EU for using blockchains in the trading and post trading of securities.
Proposal for a new EU law on crypto-assets
Crypto-assets qualifying as “financial instruments” under the Markets in Financial Instruments Directive (e.g.: tokenised equities or tokenised bonds) have already in the past been subject to EU securities markets legislation. However, these rules predated the emergence of crypto-assets and DLT. This could hamper innovation. On 24 September 2020 the Commission therefore 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 allows for exemptions from existing rules and allows regulators and companies to test innovative solutions utilising blockchains.
For other crypto-assets that do not qualify as “financial instruments” such as utility tokens or payment tokens, the Commission on 24 September proposed a specific new framework that would replace all other EU rules and national rules currently governing the issuance, trading and storing of such crypto assets. This Markets in Crypto-Assets Regulation - MiCA - will support innovation while protecting consumers and the integrity of crypto-currency exchanges (no insider trading, front running etc). The proposed regulation covers not only entities issuing crypto-assets but also firms providing services around these crypto-assets such as and firms operating digital wallets, as well as cryptocurrency exchanges.
Pan-European blockchain regulatory sandbox
A sandbox is a facility that brings together regulators, companies, and tech experts to test innovative solutions and identify obstacles that arise in deploying them. 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 (Self-Sovereign Identity) in the health, environment, mobility, energy and other key sectors. The sandbox is expected to become operational in 2021/22.