In a massive move to regulate the crypto assets sector and push greater centralized supervision of financial markets, the European Union is drafting a considerable set of rules to stabilize the rapidly growing sector. The regulations aim to supervise growth for the notoriously unstably priced currency, as well as make cross-border payments quicker and cheaper through the use of blockchain and crypto assets.
It appears the EU is boldly embracing the digitization of banking after a year that has proven the growing appetite for consumers to manage their money digitally. This strategy will be encouraging an increased adoption of digital finance and, in particular, “instant payments” which has been the most popular option for cashless spending. This comes at a time where 78% of transactions in Europe are made via cash – according to leaked reports on the matter. The urgent push for designing clear regulations and parameters around the changing financial landscape, with an oversight regime aimed at crypto assets, indicates a strong intent to fall forward from the Wirecard scandal.
A secondary goal is to mediate the volatility of cryptocurrency trading to build regulatory backed stability and provide assurance for investors. One way to achieve this is by mitigating market fragmentation in Europe by freeing up the ability for crypto trading companies to operate in all EU states once approved by one EU state. These regulations will be extended toward so-called stablecoins, such as Facebook-backed Libra.
Stablecoins are a type of cryptocurrency that are backed by traditional assets or currencies. According to the commission’s cryptocurrency plans, providers of “significant” stablecoins will be supervised by the Paris-based EU Agency, the European Banking Authority. Central banks are said to be considering releasing their own stablecoins.
Speaking on the proposals, Valdis Dombrovskis, the EU commission’s Executive Vice President for Economic Policy said, “A digital and innovative single market for finance will benefit Europeans and be key to Europe’s economic recovery by delivering better financial products for consumers and opening up new financing channels for businesses.” He further clarified that the measures will be more focused on setting clear parameters for technologies to flourish, rather than suppressing innovation.
The leaked report further shared that “By 2024, the principle of passporting and a one-stop shop licensing should apply in all areas which hold strong potential for digital finance,” it said. Instant payment systems should become the “new normal” by the end of 2021.
Should the bill be passed, the EU will become one of the most regulated centres for crypto trading and digital assets. That said, the legislative journey will most likely be arduous from now until its proposed publishing in 2024.