The European Banking Authority (EBA) indicated in January that they will be taking a closer look at pan-European regulation regarding cryptoassets and suggesting needed changes, which they proposed through their ‘Report With Advice for the European Commission on Cryptoassets (2019)’ document.
The report focuses predominately on the applicability of existing EU wide laws and how they fit with the growing number of blockchain based financial products.
The EBA’s report comes a few months prior to the announcement of France’s new PACTE laws, which would see a much more tailored approach to cryptoasset regulation from French government, offering blockchain companies strong incentives to locate in France through the new Innovation and Industry Fund.
Speaking of the new laws Bruno Le Maire, French Minister of Economy and Finance, stated that it would be advantageous for the rest of the EU to follow suit with France’s proposals for cryptoassets and adopt a uniform approach to regulation, as discussed here. However, it seems the EBA have different advice to offer the EU Commission.
Describing current cryptoasset activity in the EU as ‘relatively limited’, the EBA recommend that cost/benefit analysis is undertaken on a case-by-base basis for each potential application of blockchain financial products. This is somewhat opposed to the French view that cryptoassets should be catered for at a European level, and instead suggests that in their current state, cryptoassets are not sufficiently developed to require significant reworking of EU-level regulations.
However, the EBA’s report, whilst offering a somewhat mixed view of cryptoassets on the whole, did support the need for more cohesive regulation at a national level, remarking that as individual countries and jurisdictions have scrambled to legislate the burgeoning crypto markets, regulation in certain jurisdictions has outpaced others; subsequently giving rise to risks for a continued level playing field within the EU.
These remarks are also supported to an extent by the European Securities and Markets Authority (ESMA), who despite warning consumers of the risks associated with digital currencies, have also recently published a detailed report called ‘Advice on Initial Coin Offerings and Cryptoassets (2019)’.
Within their report, ESMA suggest that not only do cryptoassets fully qualify as financial instruments, but likewise cryptoasset exchanges and other trading models should be subject to MiFID II regulation, an EU wide applicable directive which serves as the cornerstone of EU financial market regulation and investor protection.
Other relevant regulations that ESMA suggest should extend to blockchain service providers include the ‘5th EU Anti-Money Laundering Directive (5AMLD)’, which would see certain crypto companies become ‘Obliged Entities’, required to register and conduct customer due diligence reporting – requirements which many blockchain exchanges already fulfil.
Ultimately, as the Global Cryptoasset Regulatory Landscape Study from Cambridge concluded, there are currently very few specific EU rules for cryptoassets, though this could be set to change to level the playing field among EU member states. Likewise, the EBA have announced that going forward throughout the remainder of 2019 and beyond, they will deploy a monitoring template for cryptoassets which EU member states can make use of for domestic or financial reporting; although whether this will expedite pan-EU regulations for cryptoassets is still unknown.