The European Commission is gathering input from EU citizens, businesses, regulators and other stakeholders to establish a regulatory framework for crypto assets and markets at the European level. The public consultation from last December will last until March 19, 2020, and the final recommendation is expected to be finalized in the third quarter.
EU crypto asset legislative process in progress
The European Union's legislative process can be lengthy and complex-programmes, road maps, assessments and discussions must take into account the interests of all parties. The European Community needs a common regulatory framework, with investors, businesses, customers and regulators using the same language, as stakeholders have recognized, and it takes time.
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The European Commission has legislative initiative in the European Union. The process of planning and preparing a new law or policy includes developing a roadmap, describing issues, setting goals, outlining policy choices, and defining the scope of the proposed legal framework. When the potential impact of regulations is significant, a more detailed initial impact assessment will replace the roadmap. Citizens, businesses, civil society and government authorities are invited to comment before the proposal is finalized.
The lack of clear regulatory and legal certainty in the cryptocurrency space has prompted the European Commission's Financial Stability, Financial Services and Capital Markets Alliance (Fisma) to launch a program aimed at adopting the European regulatory framework for crypto assets and related financial services. EU policy-making and enforcement in the banking and financial sector are the main responsibilities of the department.
European Commission releases impact assessment of crypto regulations
Fisma released an initial impact assessment report last December informing citizens and interested parties of the committee's plans, which will form a legislative proposal. The Committee is seeking comments on the plan and views on the issues.
This assessment will also be an opportunity to identify crypto assets and related services not covered by the EU Anti-Money Laundering Directive, providing a basis for future amendments to AMLD5, and taking into account the latest recommendations of the Financial Action Task Force (FATF).
Earlier, the European Commission passed a fintech action plan in March 2018, requiring the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) to assess the applicability of current EU legislation to crypto assets and ICOs.
Based on the recommendations they received in January 2019, the European Commission is currently working in two directions: assessing the applicability of the existing framework to digital currencies that meet the definition of financial instruments, and determining whether a new Regulatory approach.
The European Union President Ursula von der Leyen's credit to Fisma Commissioner and Vice-President Valdis Dombrovskis described the task in one sentence:
"Ensure a common approach with member states on the issue of cryptocurrencies to ensure that we understand how to take full advantage of the opportunities created by cryptocurrencies and address the new risks they pose."
The Commission noted that the European Union has not yet defined crypto assets. It's unclear how existing regulations apply, and the lack of specific regulations puts consumers and investors at risk.
From the perspective of monetary policy and sovereignty, stablecoins may pose additional challenges due to their ability to replace fiat currencies. Fisma believes that the lack of legal certainty is a major obstacle to developing a sustainable crypto asset ecosystem. In addition, national regulatory systems implemented in some Member States may make cross-border cryptographic services very difficult.
Regulatory proposals expected in Q3
The European Commission has so far received feedback from several organizations. Bolsas y Mercados Españoles (BME) in Spain welcomed Fisma's initiative. BME realizes the integration of securities market operating companies and develops blockchain solutions for them. BME expressed its views on the definition of crypto assets and financial market infrastructure that supports innovation.
The European Savings and Retail Banking Group (ESBG), based in Belgium, adheres to a licensing system for crypto service providers and has developed a set of rules to protect ordinary consumers and investors.
Two Italian entities expressed the same view. The Links Foundation says the deflationary nature of crypto assets may help European society transition from a debt-based economy, while digital ledger technology (DLT) can increase trust in the financial sector and introduce shorter value chains and fairer pay logic . The research agency called for reducing the difficulty of opening traditional bank accounts for crypto asset startups, lowering the threshold for using crypto assets without requiring qualified investor status, and promoting the use of cryptocurrencies to pay wages.
Coinlex, a small consulting firm operating in this area, emphasizes the need for a European cryptographic directive to avoid fragmented national regulations.
The public consultation program started on December 19, 2019 and will continue through March 19 this year. The European Commission is expected to collect opinions and feedback on various aspects of this regulatory framework from all walks of life.The opinions may be ordinary citizens, or market participants such as blockchain experts, exchanges and wallet providers, traditional Representatives of the financial sector, fintech startups, EU member states and national authorities.
They can contribute to the consultation by completing an online questionnaire after registering with the EU's Transparency Register. The final regulatory proposal is expected to be released in the third quarter of 2020.