The authorities of each country and EU agencies will comprise the new supervisory agency. The European Banking Authority will be in charge of supervising issuers of stablecoins.
The European Commission (EC) will announce a regulation bill for cryptocurrencies — especially stablecoins — which will be applied in the member countries of the European Union (EU) and would come into effect in late 2020.
The said bill plans to create a team of supervisors with national authorities and EU agencies. The European Banking Authority (EBA), the entity that would assume a more prominent role in controlling the cryptocurrency sector in the region, will preside over these teams.
The national authority of the Member State, the European Securities and Markets Authority, and the European Central Bank (or any EU central bank) will comprise the supervisory entities. They will be in charge of reviewing the operation and use of “significant” (risky) cryptocurrencies, which include projects similar to Libra (Facebook’s stablecoin).
The regulation will be applied on a scale, through the imposition of stricter rules — in terms of obligations, supervision, and sanctions — to cryptocurrencies considered risky. The crypto assets that supervisory entities assess as less risky will receive the application of more lax rules. Central bank digital currencies (CBDC), currently under development, will be exempted from regulation.
Supervisors will have powers, both to request cryptocurrency issuers to keep more of their funds and to revoke the authorization of the operation if there are serious breaches. ABE will impose fees on “top issuers” to fund supervisory functions.
The project proposes that it is ABE that evaluates the opinions of the supervisors of each country. It will also have powers to conduct investigations and inspections, and impose fines of up to 5% of the issuers’ annual revenue, or twice the profits made or losses avoided with the infringement.
Crypto asset developers must present their users with a technical document with information about the issuer, the token, or the trading platform. National and European regulators must approve this material in advance.
This plan for standard regulation in the region has received the endorsement from Germany, France, Italy, Spain, and the Netherlands in a draft joint statement. These countries support the idea of not allowing stablecoins to operate in the European Union until having addressed legal, regulatory, and supervisory challenges.
The five members of the EU add that stablecoins must have a 1:1 parity with reserve assets denominated in euros or fiat currencies of the member states and be deposited in an institution that the European Union has approved. The draft bill indicates that entities operating pegged cryptocurrency schemes must be registered in the EU.
Regulation Bill Based on Expert Consultation
The EC has been working on a regulatory framework for cryptocurrencies for several years. Last December, it opened a consultation with experts, where Google and PayPal also participated, receiving opinions on the regulatory needs of the sector.
They evaluated many of the ideas of the consultation in a “non-paper”, entitled “Cryptographic Assets: Key and Regulatory Developments”, which they produced in April 2020.
Based on this material, the EC team is working on the regulation bill. The definition of the types of cryptocurrencies and the introduction of changes in the Markets in Financial Instruments Directive II (MiFID II 2014/65/EU) are among the priorities. With this, they seek to include crypto assets within this legal framework.
The report emphasizes the regulation of stablecoins, calling them risky for the control of monetary policy. It contemplates expanding the supervision of the sector and requiring the application of anti-money laundering regulations to cryptocurrency exchanges, portfolio providers, and issuers of security tokens. In this way, it is in line with the regulations of the Financial Action Task Force (FATF).
By Willmen Blanco