On November 13, the European Commission (EC) published a statement by Vice-President Valdis Dombrovskis on the regulation of cryptoassets and initial coin offerings (ICOs), which he presented at the European Parliament Plenary debate in Strasbourg.
Key takeaways include:
- the EC considers that cryptoassets cannot be separated from the underlying blockchain technology as blockchains are chains of cryptoasset transactions. Pursuing the opportunities of blockchain implies that the EC takes an interest in cryptoassets, but also addresses risks they may present;
- the EC subscribes to the Financial Stability Board’s (FSB’s) assessment that cryptoassets do not currently pose a financial stability risk, but this may change if the market grows quickly;
- the market remains volatile and presents significant risks to investor protection and market integrity. Warnings to investors may therefore be insufficient. “Rules of the road” are necessary to protect investors and increase market integrity, but also to provide legal clarity and certainty for a legitimate cryptoasset ecosystem;
- the EC has already expanded the scope of EU anti-money laundering legislation to cryptoasset exchanges and wallet providers through the Fifth Money Laundering Directive (see the February 12, 2018 edition of Corporate & Financial Weekly Digest).
The key question for financial regulators is whether cryptoassets are financial instruments and, therefore, covered by financial regulation. There also is the question of whether financial regulation is suitable and addresses the risks of cryptoassets, while supporting and enabling the opportunities they bring to the market. Whether the current EU financial regulatory framework applies to cryptoassets will depend on the specific characteristics of each cryptoasset. Where there are cryptoassets that do not meet the definition of a financial instrument under EU or national law, the EC will assess a possible way forward.
The EC and the European Supervisory Authorities (ESAs) are assessing whether cryptoassets and ICOs are covered by existing financial regulation and definitions of financial instrument. The ESAs are expected to present their conclusions by the end of 2018.
The statement is available here.