The proposed EU framework for crypto-assets (October 2020)

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Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: The EU’s regulatory crypto-asset landscape has so far been characterised by fragmentation and uncertainty. This has hindered the scaling-up and development of crypto-asset products and services. The European Commission (EC) reacted to this situation on 24 September 2020, by issuing a Digital Finance Package (DFP) that includes a proposal for an EU regulatory framework on crypto-assets aimed at seizing related opportunities in a risk-controlled environment. The DFP also includes strategy papers for digital finance and retail payments, a proposals for a framework on digital operational resilience, as well as a proposal for a pilot regime for market infrastructures based on the distributed ledger technology (DLT). A closer look at the proposals for crypto-assets—which include stablecoins, significant stablecoins, and crypto-asset service providers—reveals an approach based on the principles of ‘same activity, same risk, same rule’, proportionality and complementarity. The proposals are comprehensive and would implement, de facto, the current financial regulatory framework for crypto-asset products and services. This would also create additional duties and accountabilities for all concerned national and regional regulatory bodies. While the intention is laudable and much needed, the timeline for implementation (2024) is too far off, and the nature and extent of the proposed requirements raise the issue of adequacy vis-à-vis the reality of an industry that is, at best, embryonic. The proposal risks the deterrence—instead of the promotion—of the industry if not implemented in a way that encourages and attracts entrepreneurs.