The EU has published a proposal for a Regulation on markets in crypto-assets, as part of its Digital Finance package. The proposal notes many Member States have legislated on issues relating to crypto-assets which has led to market fragmentation. It is also alert to the possibility of a larger market with the advent of “global stablecoins”, which could pose a greater threat to financial stability than the current, relatively small, market size.
The proposal covers crypto-assets that currently fall outside EU financial services legislation and e-money tokens and aims to achieve:
- legal certainty
- support for innovation
- consumer protection and market integrity
- continued financial stability
The Commission considered an “opt in” regime, so that those issuers and service providers that wanted to could have a passport, but those that did not would remain unregulated, versus full harmonisation for all except small issuers. On the basis of the objectives above, it has opted for the second choice. It also considered how to treat stablecoins, and proposes a mixture between a bespoke legislative regime addressing the risks with regulation under the EMD.
The Regulation:
- sets uniform requirements for transparency and disclosure in relation to issuance, operation, organisation and governance of crypto-asset service providers, and includes consumer protection measures to prevent market abuse;
- applies to crypto-assets that are not financial instruments, deposits or structured deposits under EU legislation;
- defines key terms and services related to them;
- regulates the offerings and marketing to the public of crypto-assets other than asset-referenced tokens and e-money tokens – providing conditions and exemptions but in principle requiring the publication of a white paper to be notified to the competent authority;
- sets out an authorisation process for asset-referenced token issuers and their obligations;
- sets out an authorisation process for issuers of e-money tokens and their obligations;
- sets out an authorisation process and operating conditions for crypto-asset service providers;
- sets a market abuse prevention regime for abuses involving crypto-assets;
- creates regulatory powers and sets sanctions.
Other elements of the package, also published, include a proposal for a pilot regime on DLT market infrastructures, a proposal for digital operational resilience and various consequential amendments to financial services legislation, including bringing financial instruments based on DLT within MiFID 2.