The EU has set out plans to regulate cryptoassets, including procurements for stablecoins – with crypto exchanges active in the region required to have a physical presence in EU territories and abide by capital requirements.
The plan was announced by the European Commission (EC), the EU’s executive body, and appears to feature most of the Financial Action Task Force (FAFT) ‘s recommendations for the policing of virtual asset service providers (VASPs).
The EC’s plan involves enshrining crypto regulation into law with the submitted Digital Operational Resilience Act. It claims “aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks.”
The act would require VASPs to prove they can “withstand all types of IT-related disruptions and threats.”
The EC said that its “safeguards” include the following:
- Capital requirements
- Custody of assets
- A mandatory complaint holder procedure available to investors
- Rights of investors against issuers
And in what appears to be a thinly veiled message to the architects of Facebook’s Libra project, the EC explained,
“Issuers of significant asset-backed cryptoassets (so-called global ‘stablecoins’) would be subject to more stringent requirements (e.g. in terms of capital, investor rights, and supervision).“
Larger stablecoins would be subject to European Banking Authority regulation.
Former Latvian prime minister and current Executive Vice-President for an Economy that Works for People at the EC, Valdis Dombrovskis, tweeted that the move was made to minimize “risks,” claiming that the move would help “protect consumers while promoting innovation.”
“An innovative digital single market for finance will benefit Europeans and will be key to Europe’s economic recovery by offering better financial products for consumers and opening up new funding channels for companies,” he added.
However, the proposals are far from being set in stone at this point.
The EC conceded in a separate document that it will now have to “work together with legislators and the supervisory community at both European and national level.“
Bloomberg stated that the EC “plans to have a framework for cryptoassets in place by 2024.“
The EU has also announced its intentions to create new rules over the next four years to facilitate cross-border payments using blockchain technology and cryptoassets, including stablecoins.
In a statement shared with CNWN, Matthieu Saint-Olive, a global CBDC expert at ConsenSys, opined,
“It is exciting to see that the EC is taking the emergence of blockchain technology seriously. There is still a lot of work to be done, especially when it comes to designing a regulation that fosters digital innovation and embraces the new opportunities this technology brings.“
However, Saint-Olive offered a word of warning, concluding that “Europe has the potential to be a leader in blockchain transformation. Let’s not make the same mistakes as we did with the cloud transformation.“