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Fintech: cryptoassets – navigating a fragmented legal framework

EU cryptoasset rules

The European Commission has identified blockchain as a key technology of strategic importance for Europe. However, cryptoassets are currently largely unregulated under European financial services law.

In order to make the law ‘ready for blockchain’, the Commission proposed a Markets in Cryptoasset Regulation (MiCA) in September 2020. The Regulation aims to cover, among other things, the issuance of cryptoassets and the provision of related services, and contains specific rules for different types of stablecoins. 

MiCA proposes regime that is separate from existing EU regulatory frameworks and would harmonise diverging national regulatory settings. This approach aims to ensure a high level of legal certainty and reduction of market and regulatory fragmentation. The proposals also include a passporting regime for cryptoasset service providers and cross-border notifications of the issuance of cryptoassets.

In addition, the Commission has proposed a pilot regime for market infrastructures based on DLT. The regulation creates a ‘regulatory sandbox’ that would exempt central securities depositories and multilateral trading facilities from certain rules otherwise applicable to them. This would allow them to set up and experiment with trading and settlement services using DLT for certain ‘security tokens’.

The European Central Bank (ECB) is also tracking the use of cryptoassets as a means of payment. In October 2020, it published a report examining the potential for a digital euro, a CBDC for the eurozone that would complement (but not replace) cash. The In the report, the ECB identifies a number of benefits that a digital euro would bring but says that there are many practical and legal issues to consider before deciding whether or not to proceed.