Cryptoassets are one of the main applications of blockchain technology in finance. The new regulation proposed by the European Union we can define it as a set of measures aimed at further exploiting and supporting the potential of digital finance in terms of innovation and competition while reducing risks. The aim is to ensure that the Union embraces the digital revolution and leads it with the help of innovative European companies at the forefront, so that the benefits of digital finance are available to consumers and businesses in the Union. In addition, it is important to note that the proposal includes a pilot scheme on market infrastructures based on decentralized registry technology (DRT). As such, the proposal has four interrelated general objectives. The first objective is legal certainty, constituting a solid legal framework that clearly defines the regulatory treatment of all cryptoassets. The second is to support innovation to promote the development of cryptoassets and a more widespread use of DRT. The third, to put in place adequate levels of consumer and investor protection and market integrity because cryptoassets not covered by existing financial services legislation present many risks. Finally, the fourth objective is to ensure financial stability, including safeguards to address risks that could arise from stablecryptocurrencies.
The proposal is based on Article 114 TFEU, which confers on the European institutions the power to adopt appropriate provisions for the approximation of the laws of the Member States. Another objective of the proposal is to remove obstacles to the establishment of the internal market for financial services and to improve its functioning by ensuring full harmonization of the applicable rules.
It is important to note that the Commission initially envisaged two strategic options for the development of a framework applicable to cryptoassets not covered by current legislation:
1. Opt-in regime for unregulated cryptoassets. Issuers and service providers that decided to voluntarily participate in the EU regime would obtain an EU passport to develop their activities on a cross-border basis.
2. Full harmonization. All issuers (with the exception of small offerings) and service providers would be subject to EU law and would obtain the EU passport. Specific national regimes for cryptoassets would cease to apply.
As is known, the second option was the one chosen by the members of the Commission. With regard to its regulatory adequacy and simplification, the Regulation imposes on cryptoasset issuers the obligation to publish an informative document -called a cryptoassets white paper- which shall contain, among other things, a detailed description of the issuer's project, the type of cryptoasset to be offered to the public or whose admission to trading is requested, the reasons for the public offering of the cryptoasset, a description of the characteristics of the public offering or the number of cryptoassets to be issued or whose admission to trading is requested, among others (Article 5 of the Regulation).
At the economic level, it is estimated that the costs of supervision for each Member State could range between 350,000 and 500,000 euros per year, with a minimum cost of 140,000 euros, although these costs would be partially offset by the supervision fees that the competent national authorities would charge crypto-asset issuers and service providers.
The Regulations are made up of nine titles:
Title I (Articles 1 to 3): Subject matter, scope and objectives.
Title II (articles 4 to 14): Non-referenced cryptoassets (utility tokens) Title III (articles 15 to 42): Tokens referenced to assets.
Title IV (articles 43 to 52): Tokens referenced to e-money.
Title V (articles 53 to 75): CASP licenses (formerly VASP) Title VI (articles 76 to 80): Prevention of market abuse.
TitleVII (Articles 81 to 120): EBA and ESMA.
Title VIII (Articles 121 and 122): Delegated acts.
TitleIX (articles 122 to 126): Final and transitory provisions.
In future publications, we will be breaking down the content of each of the headings in order to provide a general overview of the Regulations.
