By
Chimamanda U. Martha
April 12th, 2024
The EU has realized that the future of finance is digital and Valdis Dombrovskis has indicated that the regulatory push will help to prevent market segmentation within the EU.
The European Union (EU) has revealed plans to enact a regulatory framework that will govern cryptocurrencies and stablecoins in the region. According to the EU, some cryptocurrencies or crypto assets already fall under the regulatory purview of the body, but most of the extant regulations were enacted long before the emergence of digital assets which necessitates the need for renewed legislation.
“Existing rules most often predate the emergence of crypto-assets and DLT. This can make it difficult to apply the financial services regulatory framework to crypto-assets and in some cases may hinder innovation and the adoption of DLT in the financial sector,” the EU said in a press release. As a result of this position, the 27-member bloc is “proposing a pilot regime for market infrastructures that trade and settle transactions in financial instruments in crypto-asset form.”
The EU has come to realize that the future of finance is digital and as CNBC reported, European Commission Executive Vice President Valdis Dombrovskis has indicated that the regulatory push will help to prevent market segmentation within the EU.
The EU Proposed Regulation on Cryptocurrencies: Key Elements
The EU has affirmed that Stablecoins are among the set of digital-assets it needs to regulate on concerns that issuers may not have enough reserve to ensure longer-term sustainability. For the broader regulation, the EU will seek to prompt cryptocurrencies’ service providers such as exchanges, wallet providers, and the continuing surge in DeFi lending service providers amongst others to have a physical presence in the EU. These firms will be largely subjected to a competent national body to provide authorizations before starting business activities in the region.
The EU will also move to prevent abuse in secondary crypto markets that are covered under the existing regulations as noted earlier. “To ensure market integrity, the initiative also envisages bespoke measures to prevent market abuse, such as insider dealings and market manipulation,” the EU said.
With respect to stablecoins, the regulatory framework will seek to compel issuers to seek authorization by meeting the EU’s governance requirements, rules on conflict of interests, disclosure of stabilizations mechanism, investment rules, and additional white paper requirements.
While there are other elements the new regulations will cover, the commission has affirmed that crypto-asset service providers will benefit from the EU passport. This implies that such companies will be able to operate in all the EU member states provided they have secured authorization in one of the EU member countries.
Implications for Facebook’s Libra
The new set of regulatory frameworks as outlined by the EU will further add to the regulatory challenges of the Facebook-linked Libra project. With initial plans to issue a single stablecoin called the Libra Coin, the project has since rescinded its decision to pursue this path following resistance from regulators who fear the project will disrupt the global financial system.
The project still relies on multiple stablecoins to perfect its operational model which places it on crosshairs with the proposed EU legislation on cryptocurrencies and stablecoins. Nonetheless, “The legislative process will take time, at least a year, probably longer, depending on how much priority will be given by both member states and the European Parliament,” Dombrovskis confirmed.
