LEGISLATION FOR CRYPTOASSETS: EU PROPOSES FIRST SET OF RULES

Τhe European Commission published its legislative package for cryptoassets in the E.U. This includes the Regulation on Markets in Crypto Assets and a Pilot Regime for Market Infrastructures based on DLT. (Distributed ledger technology).

Some crypto-assets already fall under existing EU financial services legislation and will remain subject to that legislation. For example, some crypto-assets qualify as financial instruments and are therefore subject to EU securities markets legislation (e.g. MiFID).

However, existing rules most often predate the emergence of crypto-assets and DLT. This can make it difficult to apply the financial services regulatory framework to crypto-assets and in some cases may hinder innovation and the adoption of DLT in the financial sector. 

The Commission is therefore proposing a pilot regime for market infrastructures that trade and settle transactions in financial instruments in crypto-asset form.

The pilot regime, which allows for derogations from existing rules, will allow regulators to gain experience on the use of distributed ledger technology in market infrastructures and for companies to test out solutions utilising DLT.

The intention is to allow companies to test and learn more about how existing rules fare in practice. They can see where further changes may be needed to enable innovation. The Commission is also proposing some related amendments where current legislation presents clear issues to the application of distributed ledger technology in market infrastructures.

For other crypto-assets, the Commission is proposing a comprehensive framework that will protect consumers and the integrity of previously unregulated markets in crypto-assets. To ensure consumer protection, the scope of the proposed regulation is broad.

It will cover not only entities issuing crypto-assets but also all firms providing services around these crypto-assets such as, for example, firms that keep customers’ crypto-assets in custody (“custodian wallets”), entities that allow customers to buy or sell crypto-assets for fiat money or other crypto-assets (“crypto-asset exchanges”), crypto-asset trading platforms and many more.

The framework also lays down requirements for the emerging category of so-called ‘stablecoins’, which are divided into e-money tokens and asset-referenced tokens. These are crypto-assets seeking to retain a stable value, making them more useful for payments. Those ‘stablecoins’ that are more systemic (“significant asset-referenced tokens” or “significant e-money tokens”) will be subject to enhanced rules.

The goal of this framework is to provide legal certainty for the regulatory treatment of all crypto-assets, whether they qualify as financial instruments or e-money under existing legislation, or were previously unregulated.

The Regulation on Markets in Crypto-Assets (MICA) will cover all crypto-assets not currently covered under existing financial services legislation. This will range from utility tokens that provide access to a service, so-called ‘stablecoins’ issued primarily for payments to everything in between. In the proposed regulation, these are listed as; crypto-assets, utility tokens, asset-referenced tokens and e-money tokens, with the latter two capturing the “stablecoin” universe.

‘Stablecoins’ are a type of crypto-asset that can be used for payments and that claim to maintain a stable value by referencing one or several currencies, commodities or other crypto-assets, or a combination of such assets.

Τhe proposed Regulation will cover a wide range of crypto-asset service providers, such as custodian wallet providers, crypto-asset exchanges, crypto-asset trading platforms and issuers of crypto-assets. (source: European Commission/ photo: pixabay)

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