The EU will set up a new college of supervisors, including national and European authorities, to oversee “major” digital currencies, including Facebook’s Libra , according to the European Commission’s cryptocurrency draft, viewed by EURACTIV .
The long-awaited regulation will address the high volatility of cryptocurrencies like Bitcoin , the father of all cryptocurrencies, and the risks of systemic currencies like Libra.
With the 167-page draft text to be presented in the coming weeks, the EU will be the first major case law to regulate cryptocurrencies.
Valdis Dombrovskis, Vice-President of the Financial Services Commission, said in a June comment:
I believe that Europe is able to lead the way in regulation.
Now it seems that words are followed by action
For some, cryptocurrencies are considered the „money of the future“ because they offer an almost instant payment system with very low fees. But they are seen by the public as a primary target for speculators and money launderers. In addition, the authorities are particularly concerned about digital tokens, the value of which is linked to sovereign currencies – so-called „stablecoins“. These should also include the publicly prominent example Libra from Facebook.
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Since they are pegged to national currencies, proponents of stablecoins claim they can avoid the bubble-and-burst trend seen in Bitcoin. But regulators fear they could destabilize the global economy, especially if they have the potential to reach 2.7 billion users around the world, like Facebook’s native project. French Finance Minister Bruno Le Maire told EURACTIV in July last year:
We will not accept that Libra will be converted into a sovereign currency that can endanger financial stability
The Commission’s new proposal will come after almost two years of slow progress. But as EU officials admitted, „Libra was a ‚wake-up call‘ to take these digital tokens seriously“.
The document states that the aim of the new rules is to create legal certainty, support innovation, protect consumers and investors, and ensure financial stability and market integrity. The need to regulate at EU level has also become more pressing as some member states have started drafting their own rules, including Germany, France and Malta.
However, the Commission proposal will not cover the digital currencies that central banks are currently developing.
The draft proposal places lower requirements on cryptocurrencies, which entail lower risks. For “significant e-money tokens”, however, stricter rules will apply in terms of obligations, supervision or the sanction regime.
By adapting legislation to reflect the level of risk, the Commission expects to fuel a market valued at around $ 350 billion and spread across more than 6,700 digital currencies, while addressing the potential challenges these digital assets could pose .
Cryptocurrency developers should create a “whitepaper” with all relevant information about the issuer, the token or the trading platform, “so that potential buyers can make an informed purchase decision and understand the risks associated with the offer,” says the proposal.
National and European regulatory authorities have to approve these documents before issuers can start operating.
For the Libra Association and the issuers of “significant e-money tokens”, the path will be more difficult because they also have to become a credit institution or an e-money institution and, compared to other digital operators who offer financial services, stricter requirements subject.
As a result, Libra and other “significant e-money tokens” will come under the supervision of the European Banking Authority. However, the Commission will add an additional body, including national and European regulators, to assist the EBA in supervising these digital assets.
The EBA will chair this supervisory college and will, among other things, be the national authority of the member state in which the issuer of the e-money token in question was approved, the European Securities and Markets Authority (ESMA), the ECB or any other EU Central bank, depending on which sovereign currency is behind the digital token.
The EBA must „take due account of“ the non-binding opinions of the college, it says in the draft text, which could include the request to the issuers to hold more own funds or the revocation of the authorization in the event of serious breaches of their obligations. If the EBA does not agree with the opinion of the college, it should explain any significant deviation from the recommendations.
Fines and Fees
The EBA will also be empowered to conduct on-site investigations and inspections and to impose fines of up to 5% of the issuer’s annual turnover or double the amount of profits or losses gained or avoided by these cryptocurrencies as a result of the breach.
To fund its expanded oversight function, banking regulators will collect fees from the issuers of these major cryptocurrencies.
The draft text also obliges the Libra Association and the issuers of other major e-money tokens to redeem the monetary value of the e-money tokens at any time and at face value. The rules also prohibit the granting of any shares to the owners of these digital assets.
Is it all good or bad for the crypto space? I believe that these regulations could well have a bigger impact on the market. Its introduction and, above all, the threat of its implementation could also entice many dodgy founders and CEOs to look the other way before they become the subject of government investigations.
The fact that regulations are being introduced by the sovereign states is also no surprise. But this primarily affects Altcoins and their teams, not Bitcoin and certainly not the development of the entire DeFi scene. True decentralization cannot be regulated.