The Commission Digital Finance Package will pave the way for a crypto-assets market.

Read the article by Francesco Dagnino (Lexia Avvocati)

Based on broad public consultations and the digital finance outreach, on 24 September 2020 the European Commission adopted the “Digital Finance Package” (hereinafter “DFP”) concerning digital finance and legislative proposals on crypto-assets. As stated on the press release the DFP “will boost Europe’s competitiveness and innovation in the financial sector, paving the way for Europe to become a global standard-setter. It will give consumers more choice and opportunities in financial services and modern payments, while at the same time ensuring consumer protection and financial stability”.

The Commission proposed, inter alia, a new regulation on crypto-assets, the so-called “Regulation on Markets in Crypto Assets” (hereinafter “MiCA”). MiCA’s scope provides legal clarity and certainty for crypto-asset issuers and providers, and – as stated in the aforementioned press release – it “will allow operators authorised in one Member State to provide their services across the EU (“passporting”)”.

The Commission also proposed a pilot regime for market infrastructures that intends to try to trade and settle transaction in financial instruments in crypto-asset form. The Commission stated that the new “regime represents a so-called ‘sandbox’ approach – or controlled environment – which allows temporary derogations from existing rules so that regulators can gain experience on the use of distributed ledger technology market infrastructures, while ensuring that they can deal with risks to investor protection, market integrity and financial stability. The intention is to allow companies to test and learn more about how existing rules are in practice”.

The Commission differentiates between those crypto-assets already governed by EU legislation, and other crypto-assets. The former will remain subject to the current regulation but the Commission proposed a new regulation for market infrastructures that is trading and settling transactions in financial instruments in crypto-asset form. For unregulated crypto-assets, as of today the Commission includes also the so-called “stablecoins”, MiCA sets strict requirements for issuers of crypto-assets in Europe and crypto-asset service providers who intend to apply for an authorisation to provide their services in the EU market. The scope of the requirements is provide safeguards to all the stakeholders that are involved in the market in crypto-assets, and as stated on a recent communication it “include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets would be subject to more stringent capital requirements, liquidity management and interoperability requirements”.

What are the key elements of these proposals?

Key elements of the DFP include:

  • obligations for crypto-asset service providers (and notably trading platforms, exchanges and custodial wallet providers), they will be required to have a physical presence in the EU and they will be subject to prior authorisation from a national competent authority before starting their activities. They will be subject to capital requirements, governance standards and segregation of their clients’ assets from their own funds;
  • provisions concerning market integrity, the proposal also set out measures to prevent market abuse, such as insider dealings and market manipulation;
  • obligations for issuers, issuers of crypto-assets will be required to draft and publication of a white paper including all relevant information on the specific crypto-asset. Such information would include:
    • a detailed description of the issuer;
    • the project and planned use of funds;
    • terms and conditions of the agreement;
    • rights and obligations of the parties;
    • the relevant risks concerning the purchase of the crypto-assets.
  • special regulation in relation to issuers of e-money tokens, they will be subject to the regulatory requirements of the Electronic Money Directive and the rules set out in MiCA;
  • corporate governance and organisational requirements, crypto-asset service providers will be subject to prudential requirements, organisational requirements, rules on safekeeping of clients’ funds and rules on mandatory complaint handling procedures and conflicts of interest;
  • a new supervision regime, in order to ensure effective supervision, Member States will designate a competent authority as the single point of contact, but for issuers of significant asset-referenced tokens, the supervision will be carried out by the European Banking Authority.

In light of the above, and considering the extend of the legal framework that DFP would introduce, once the final regulation of both MiCA and the market infrastructures based on distributed ledger technology will be issued the EU financial market might be very attractive for crypto-assets and related services ecosystem.


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