In questa foto illustrazione il criptovaluta elettronico ...

After years of anticipation on 19 December 2019, the European Commission (the Commission) published a public consultation on crypto assets, which concluded on 19 March 2020. The consultation paper follows detailed due diligence, including a report on virtual currencies from Parliament European Union, the establishment of the Blockchain Observatory to monitor blockchain use cases, an audit of existing legislation by the European Securities and Markets Authority (ESMA) and European Banking Authority (EBA), and an attempt to fall within the remit of the European regulation on crowdfunding service providers.

The comprehensive consultation covers three main areas:

The classification of crypto-assets
The processing of crypto-assets covered by EU legislation e
The processing of crypto-assets that fall outside the scope of EU legislation.

Following extensive feedback from industry and regulators around the world, the Commission published a “non-paper” in May 2020, which includes options for possible approaches that can be adopted in the proposal.

For crypto-assets that could qualify as MiFID II financial instruments there are three options to consider:

1. Non-legislative measures that would provide guidance on how existing legislation applies to crypto assets

2. Targeted legislative changes that remove provisions that hinder the issuance, trading and subsequent trading of security tokens, or

3. A pilot scheme, for example for a period of three years, which creates a new DLT market infrastructure.

Lavan Thasarathakumar, former adviser to the European Parliament and now consultant to Hogan Lovells and Head of Regulatory Affairs at Global Digital Finance explains: “Non-paper is a form of soft diplomacy tool that is used to stress test ideas with the treasuries of the EU and get some political buy-in before the full proposal is published. What is interesting here is the opt-in regime proposal. This is a regime that has been used to great effect in France and was clearly something that was a popular suggestion in the consultation, however this is a difficult regime to adopt across the EU.

“We have seen the problems this created during the European regulation on crowdfunding service providers (ECSP). With an opt-in regime, we would ask all national competent authorities (NCAs) to manage their own regulatory regime, but then a other potentially very different for those joining the European regime, this would not create the regulatory clarity we intended to create. In the CFSP it was the Council made up of the Member States, which had removed the opt-in regime and created a harmonized regime in its place. I am not surprised that this has been removed in the last paperless document and I would not be surprised if it were a resistance encountered by the Member States and subsequently removed ”.

Earlier this month, following comments from the Director-General – Financial Stability Financial Services and Capital Markets (DG FISMA), the department responsible for this proposal, the Commission published an updated version of the non-paper adding further details to the approach they propose to adopt.

The main topics discussed in this document were: · The clarification of the notion of financial instruments · A pilot regime e A bespoke regime under the name of Markets in Cryptoassets Regulation.

This theme has been consistent with the communication from the Commission for some time. The Commission’s position has always been to take a technology-neutral approach and, although the Commission has lobbied to regulate cryptoassets or ban them, this would end up being product regulation, which the Commission rarely does in any chance, and in doing so it would regulate technology. This would not be in line with the goals set by President von der Leyen for a Europe that fully grasps the potential of the digital age and strengthens its industry and innovation capacity. Instead, the approach that has been taken is to focus on a regulatory framework for cryptocurrency service providers seeking to create legal certainty but also to improve market integrity by having standards for people such as issuers, brokers, exchanges and wallet providers. It is important to ensure that the regulation of a crypto asset follows its economic function. In order to clarify this and ensure full harmonization on this approach, it is suggested that there be a change in the notion of financial instruments to ensure that such financial instruments can be issued on a digital register. This legislative amendment would be supplemented with an interpretative guide to increase convergence.Per quanto riguarda il regime pilota, la Commissione osserva che potrebbe essere creato un approccio simile a un sandbox per valutare le infrastrutture del mercato DLT. Ciò consentirebbe sia agli operatori del mercato che ai regolatori di acquisire esperienza sull’uso della DLT, i vantaggi di tale tecnologia e la nuova forma di rischi che crea.

In the initial phase there is easy access where the DLT market infrastructure would be a DLT Multilateral Trading Facility (MTF) or a DLT Central Securities Deposit (CSD). Potential market participants would be required to obtain a specific authorization granted by their NCAs under the conditions set out in the new legislation and in addition to their existing authorization as an investment firm or CSD. While this may benefit incumbents, it is understandable given the pilot phase of this regulation. Furthermore, in order to avoid the creation of financial stability risks, the DLT market infrastructure would be allowed to admit to trading or register simple financial instruments such as shares and bonds on the digital register. ESMA will issue a non-binding opinion on the authorization to be granted and on the exemptions requested by the applicant, taking into account the objectives of investor protection, market integrity or financial stability and in order to ensure consistency and proportionality in terms of exemptions granted. by the competent authorities to the DLT MTFs. ESMA would also play a coordinating role between competent authorities. The applicant will also be subject to additional requirements which are all aimed at improving the knowledge and diligence of the national competent authorities. This pilot scheme is considered a temporary scheme to allow market participants, regulators and European Supervisory Authorities (ESAs) to gain experience on the use of DLT in EU financial services legislation. After a period of three years, the Commission should submit a detailed report on this pilot scheme to the Council and Parliament. Most of the non-paper is the detail of the proposed bespoke scheme, Markets in Cryptoassets (MiCA). The scheme is being considered in the form of a regulation to establish harmonized requirements at EU level for issuers seeking to offer their cryptoassets across the Union and cryptoasset service providers wishing to apply for an authorization to provide their own services in the single market. This initiative will replace existing national frameworks applicable to cryptoassets not covered by existing EU financial services legislation and, in doing so, the regulation will also seek to establish EU-wide definitions for a number of key terms.

Regarding the requirements related to cryptoasset issuers, the main requirement of the MiCA would be to require the publication of a harmonized white paper / information document accompanying a cryptoasset issuance in the EU with a detailed description of the issuer’s mandatory information. , the project and the intended use of the funds, terms of the offer, rights and obligations related to cryptoassets and risks. Certain exemptions to this white paper would also be implemented for small cryptocurrency offerings, worth less than € 1 million over a twelve month period, and for offers aimed at qualified investors as defined in the Prospectus Regulations. The white paper and marketing communications relating to the issue would not be subject to pre-approval by the NCAs, but should be notified to the NCAs prior to their publication. The issuer must provide adequate details to the NCA in order to determine whether the crypto-asset in question does not qualify as a financial instrument under MiFID II or electronic money under the EMD. If the white paper does not comply with the mandatory information, the ANC would have the option to suspend or prohibit the offer or make public that the offer does not comply with EU legislation. The non-paper therefore meets the requirements of asset-backed cryptoassets, often described as stablecoins, which indicated that issuers of asset-backed cryptoassets would: · They must be established as an EU legal entity Be obligated to disclose the rights attached to the asset-backed cryptoasset, including any potential direct claims against the issuer or asset reserve, and Be required to publish a white paper with additional mandatory information, compared to other cryptocurrency issuers. There would also be a provision preventing asset-backed crypto-asset issuers and crypto-insurance service providers from granting any interest related to the length of time an asset-backed crypto-asset holder holds such crypto-assets. An important aspect of this is that the Commission would have the power to adopt a delegated act to specify specific circumstances and thresholds that allow the differentiation between asset-backed cryptoassets and significant asset-backed cryptoassets.

Issuers of significant asset-backed cryptoassets would be subject to additional capital requirements and liquidity management and interoperability requirements. Once asset-backed cryptoassets have been designated as significant, oversight of the issuer could be vested in the EBA. The supervision of e-money issuers that would meet the materiality criteria under the MiCA could also be transferred to the EBA. On cryptographic service providers, MiCA would regulate the following services: · Custody and administration of cryptoassets on behalf of third parties; · Management of a trading platform for cryptoassets; Exchange of cryptocurrencies for fiat currency using proprietary capital; Exchange of cryptoassets against other cryptoassets using proprietary capital, receiving and transmitting orders for cryptoassets on behalf of third parties, execution of orders on behalf of third parties; Placement of cryptoassets; advice on cryptoassets and asset-backed cryptoasset payment transactions. “We expect the Commission’s proposal to be published at the end of September and it is clear that it will be a substantial proposal. It is a great opportunity for Europe to declare its claim as the hub of crypto-asset business, embracing opportunities and mitigating the risks. “The pilot scheme will offer an opportunity to empower national regulators and European supervisors before taking further steps if necessary. While this proposal will be a key moment in the discussion on crypto assets, it is important to note that we are only at the beginning of the process. : Once the proposal is published in September, it will be in the European Council and the European Parliament and I have no doubt that there will be many more debates on it, ”says Thasarathakumar.

Cheng Hao Hsu
Author: Cheng Hao Hsu

Cheng Hao Hsu is a FinTech entrepreneur who is passionate about web3 and blockchain education. He speaks about Crypto, Blockchain, and Technologies.

Cheng Hao Hsu is a FinTech entrepreneur who is passionate about web3 and blockchain education. He speaks about Crypto, Blockchain, and Technologies.

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