In June 2020, Valdis Dombrovskis, Executive Vice President of the European Commission (‘EC’) for An Economy that Works for People at the European Union (‘EU), discussed and laid down the scope, possibilities, and long term benefits in creating a pan-European cryptocurrency law that aids in providing legal clarity, a sound market for entities and enhances competition around the continent. This comes in furtherance to EU’s Fin-tech Action Plan of 2018 as proposed by the European Commissioner for Financial Stability, Financial Services and the Capital Markets Union (‘FISMA’) that made way for various public consultations through their report titled ‘EU Framework for Markets in Crypto-Assets’, and the ‘Study on Crypto-Assets’ by the European Parliament Committee on Economic and Monetary Affairs (‘ECON’) to be held through the course of 2019-20, inviting recommendations and suggestions from experts and the general public around the Union, highlighting the various regulatory necessities and technicalities around the stablecoins and security tokens, the inclusion of cryptocurrency as financial instruments and blockchain regulations.
Recently, on September 10, 2020, an unofficial draft proposal for a Regulation of the European Parliament and the Council on Markets in Crypto-assets (‘MiCA’) (‘draft proposal’) was released, the authenticity of which has been confirmed by a German politician (a member of the EU) Sven Giegold. This draft proposal lays down provisions in detail concerning the regulation of cryptocurrencies by ensuring its legal stability, promotion of technological avenues, encouragement of market involvement and, financial growth, and stability. The draft proposal is divided into 9 (nine) titles, which ranges from definitions, regulations for market offerings, regulations around the issuance of stablecoins, procedures to be followed by crypto-asset service providers, prohibitions and safeguards against market abuses, the scope of the authority and power of European Securities and Markets Authority (‘ESMA’) and European Banking Authority (‘EBA’) and obligations of the EC towards the overall working of this pan-EU legislation. Furthermore, the draft proposal would replace existing national directives/regulations applicable to crypto-assets not covered by existing EU financial services legislation, and set out an all-encompassing framework that considers aspects from its definition, usage, and protection in the pan-continental market.
In light of this, it is imperative to look at how European countries are currently coping up with cryptocurrency laws, and what are the differences that the potential legislation will bring for governments, entities, and individuals around the continent.
Crypto-Assets and the European Union (EU)
Since 2012, the European Central Bank (‘ECB’) [central bank to 19 countries that have adopted the Euro] has been releasing reports and papers over the growth of crypto-assets around Europe and the world, but there has been limited regulations/directives that have been released from their end, in order to facilitate investments and expansion via this mode of financial exchange. Furthermore, they do not intend to replace cryptocurrencies as a replacement to the Euro (for competition/antitrust reasons), and therefore have criticised member-nations to form nationalised crypto-currency systems (e.g. the Estonia Case). Nevertheless, in 2018 as the EU agreed towards the 5th Anti-Money Laundering Directive (‘AMLD’) that allows the functioning of crypto-asset exchanges if there is a mandatory conversion towards fiat currencies involved; it sowed the first seeds of hope towards a pan-EU regulatory framework and a gradual shift towards cryptocurrencies for promoting ease in transactions. In an address at the EU Plenary Debate 2018, Mario Draghi (President of the ECB), warned that Bitcoin and other digital currencies are very ‘risky assets’ due to their high volatility and speculative pricing nature. Nevertheless, he said that these digital currencies are not subject to a specific supervisory approach, and that work is underway in the Single Supervisory Mechanism (‘SSM’) to identify potential prudential risks that these digital assets could pose to supervised institutions.
On the other side, EU member-states, in their individual capacities, have been receptive towards the exploration of crypto-assets and blockchain technologies in their unique ways. Malta has been vocal about the creation of national legislation for cryptocurrencies, whereas Germany and Italy have allowed cryptocurrencies to be financial instruments, and permitted its trade as Initial Coin Offerings (‘ICOs’) as well. France has passed ordinances which recognise cryptocurrencies as financial instruments in general, but overall have been silent on the entirety of its usage. Austria does not recognise cryptocurrencies as a financial instrument, but rather as a taxable business commodity. Denmark and Belgium do not have specific regulations towards cryptocurrencies, while the former has been critical towards its adaptation on a national basis. Other countries such as Spain, Portugal, and the Netherlands, have been exploring the possibilities around cryptocurrencies, but have been vocal about it being unregulated and not being given licensing and authorisation by the national government for its usage. Countries such as Bulgaria, Croatia, Hungary, and Romania have gone on record to call transactions with such currencies to be filled with risks and uncertainty due to its unregulated nature, and therefore should be judiciously used for transactions and trade.
In such a situation, this pan-EU draft proposal on cryptocurrencies shall bring new dawn towards the exchange and trade of crypto-assets around the member-states. It shall be interesting to see how there are co-operation and harmony in the course of its execution and whether there shall be benefits that derive out of the legislation as it has been promised by the EC. Authored by Mustafa Rajkotwala, Officer, Data and Innovations, BlockSuits.
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