Crypto-assets
date: 30/11/2020
As part of the broader digital finance package adopted on 24 September 2020, the European Commission proposed for the first time legislation on crypto-assets. The proposed measures are intended to ensure financial stability as well as consumer and investor protection. They also aim to promote innovation, by bringing legal clarity to companies that want to develop products and services that make use of crypto-assets and the underlying technology.
Existing legislation
Some crypto-assets already fall under existing EU financial services legislation – for instance those that qualify as financial instruments – and they will continue to be subject to these rules. However, existing legislation often predates the emergence of crypto-assets and distributed ledger technology (DLT). This can make it difficult to apply the rules to crypto-assets and can sometimes also stifle innovation. The Commission is therefore proposing a pilot regime, which will allow temporary derogations from existing rules so that regulators and companies can experiment with the use of DLT in market infrastructures. This will also ensure that they can deal with risks to investor protection, market integrity and financial stability. Experience gained through the pilot regime will ultimately provide the evidence base for potential changes to existing legislation in this area.
For other crypto-assets, the Commission is proposing comprehensive legislation that will protect consumers and the integrity of previously unregulated markets in crypto-assets. The rules will cover both firms issuing crypto-assets and those providing services around these crypto-assets. Examples include companies that keep customers' crypto-assets in custody (‘custodian wallets’), firms that allow customers to buy or sell crypto-assets (‘crypto-asset exchanges’), crypto-asset trading platforms and many more.
‘Stablecoins’
The proposed rules also lay down requirements for the emerging category of so-called ‘stablecoins', which are divided into e-money tokens and asset-referenced tokens. An e-money token is a crypto-asset designed to maintain a stable value by referring to one currency, while asset referenced tokens are crypto-assets that seek to maintain a stable value by referring to several currencies, commodities or other crypto-assets, or a combination of such assets. Where these become more systemic (‘significant asset-referenced tokens’ or ‘significant e-money tokens’), they will be subject to enhanced rules.
A harmonised EU approach will lower the complexity of applicable rules and reduce fragmentation within Europe. The new rules will allow ‘passporting’ – in other words, operators authorised in one Member State will be able to provide their services across the EU.
What are crypto-assets?
Crypto-assets, are digital assets that can be transferred and stored electronically, using technology known as ‘distributed ledger technology’. ‘Crypto-assets can, for example, be designed as a means of exchange or to provide access to a service – sometimes referred to as ‘utility tokens’.