The European Commission proposed in September 2020 a Text for a regulation on markets in crypto-assets. This is a framework on crypto-assets to allow for innovation in a way that preserves financial stability and protects investors.
Crypto-assets are digital representations of values or rights, which are transferred and stored electronically. They can serve as an access key to a service, could facilitate payments, or could be designed as financial instruments.
The Commission differentiates between those crypto-assets already governed by EU legislation, and other crypto-assets. The former will remain subject to existing legislation but the Commission proposes a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. This should enable market participants and regulators to gain experience with the use of DLTs exchanges that would trade or record shares or bonds on the digital ledger.
For previously unregulated crypto-assets, including ‘stablecoins’, the Commission proposes a bespoke regime. The proposed regulation sets strict requirements for issuers of crypto-assets in Europe and crypto-asset service providers wishing to apply for an authorisation to provide their services in the single market.
Safeguards 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.
Article 3 of the proposal sets out the terms and definitions that are used for the purposes of this Regulation, including ‘crypto-asset’, ‘issuer of crypto-assets’, ‘asset-referenced token’ (often described as ‘stablecoin’), ‘e-money token’ (often described as ‘stablecoin’), ‘crypto-asset service provider’, ‘utility token’ and others.
For the purposes of this Regulation, the following definitions apply:
(1)‘distributed ledger technology’ or ‘DLT’ means a type of technology that support the distributed recording of encrypted data;
(2)‘crypto-asset’ means a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology;
(3)‘asset-referenced token’ means a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets;
(4)‘electronic money token’ or ‘e-money token’ means a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender;
(5)‘utility token’ means a type of crypto-asset which is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token;
(6)‘issuer of crypto-assets’ means a legal person who offers to the public any type of crypto-assets or seeks the admission of such crypto-assets to a trading platform for crypto-assets;
(7)‘offer to the public’ means an offer to third parties to acquire a crypto-asset in exchange for fiat currency or other crypto-assets;
(8)‘crypto-asset service provider’ means any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis;
(9)‘crypto-asset service’ means any of the services and activities listed below relating to any crypto-asset:
(a)the custody and administration of crypto-assets on behalf of third parties;
(b)the operation of a trading platform for crypto-assets;
(c)the exchange of crypto-assets for fiat currency that is legal tender;
(d)the exchange of crypto-assets for other crypto-assets;
(e)the execution of orders for crypto-assets on behalf of third parties;
(f)placing of crypto-assets;
(g)the reception and transmission of orders for crypto-assets on behalf of third parties
(h)providing advice on crypto-assets;
(10)‘the custody and administration of crypto-assets on behalf of third parties’ means safekeeping or controlling, on behalf of third parties, crypto-assets or the means of access to such crypto-assets, where applicable in the form of private cryptographic keys;
(11)‘the operation of a trading platform for crypto-assets’ means managing one or more trading platforms for crypto-assets, within which multiple third-party buying and selling interests for crypto-assets can interact in a manner that results in a contract, either by exchanging one crypto-asset for another or a crypto-asset for fiat currency that is legal tender;
(12)‘the exchange of crypto-assets for fiat currency’ means concluding purchase or sale contracts concerning crypto-assets with third parties against fiat currency that is legal tender by using proprietary capital;
(13)‘the exchange of crypto-assets for other crypto-assets’ means concluding purchase or sale contracts concerning crypto-assets with third parties against other crypto-assets by using proprietary capital;
(14)‘the execution of orders for crypto-assets on behalf of third parties’ means concluding agreements to buy or to sell one or more crypto-assets or to subscribe for one or more crypto-assets on behalf of third parties;
(15)‘placing of crypto-assets’ means the marketing of newly-issued crypto-assets or of crypto-assets that are already issued but that are not admitted to trading on a trading platform for crypto-assets, to specified purchasers and which does not involve an offer to the public or an offer to existing holders of the issuer’s crypto-assets;
(16)‘the reception and transmission of orders for crypto-assets on behalf of third parties’ means the reception from a person of an order to buy or to sell one or more crypto-assets or to subscribe for one or more crypto-assets and the transmission of that order to a third party for execution;
(17)‘providing advice on crypto-assets’ means offering, giving or agreeing to give personalised or specific recommendations to a third party, either at the third party’s request or on the initiative of the crypto-asset service provider providing the advice, concerning the acquisition or the sale of one or more crypto-assets, or the use of crypto-asset services;
(18)‘management body’ means the body of an issuer of crypto-assets, or of a crypto-asset provider, which is appointed in accordance with national law, and which is empowered to set the entity’s strategy, objectives, the overall direction and which oversees and monitors management decision-making and which includes persons who direct the business of the entity;
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