Stablecoin issuers will have to meet capital requirements and manage their liquidity. Cryptocurrency companies must have a physical headquarters in Europe to be able to work in the territory.
The adoption of the first regulatory framework for the legalization and supervision of the cryptocurrency and financial technologies (FinTech) market by the European Union (EU) is increasingly close to happening. In recent days, this organization published the details of the new “digital financial package” for member countries, paying special attention to those companies that issue stablecoins.
The document indicates that this new regulatory framework seeks to mitigate the potential risks that users of these technologies face and provide legal certainty to companies in the sector. Likewise, the bill seeks to adapt current financial regulations to facilitate digital innovation and reduce financial fragmentation.
Based on public consultations, the European Commission determined that companies in the sector will have to comply with a series of regulations to operate throughout the territory. The plan makes special mention of stablecoins, crypto assets pegged to fiat currencies like the US dollar and the euro.
The issuance of these “stable” cryptocurrencies is in the hands of companies, which manage the fiat money reserves that support said issuances. However, in recent years, these initiatives have caused concern in the financial world, since some people believe that, due to the lack of regulation, they could be issuing unsupported assets.
The European Commission says that those companies “will be subject to stricter capital, liquidity management and interoperability requirements” than those of other cryptocurrency firms. For this reason, they must report on their governance requirements, stabilization mechanisms, investment rules, and technical information, as well as comply with the laws to avoid conflicts of interest with their users.
License to Work with Cryptocurrencies in the European Union
Projects in the cryptocurrency sector, including exchanges, wallets, or stablecoins, must request an authorization to be able to provide services in the European Union. The bill indicates that these businesses will be in charge of safeguarding the assets of their customers, will allow claims from investors, and will commit to respecting the investor’s rights.
Regardless of the nation from the conglomerate where they have applied for the license, the companies that receive it will be able to provide their services in the 27 countries that comprise the European Union. According to local sources, this measure seeks to unify the European market, integrating all its financial services.
On the other hand, the ecosystem firms that offer their services in the territory must have physical offices in the European Union, even if they are digital businesses. Likewise, they must comply with regulations against piracy, money laundering, and insider trading. The European Banking Authority (EBA) and the regulators of each nation, such as the National Crime Agency (NCA) from the UK, will ensure compliance with these regulations.
According to Valdis Dombrovskis, executive vice president of the European Commission, the plan is already ready, but its implementation could take more than one year. “The legislative process will take at least one year, probably more, depending on the priority that both the Member States and the European Parliament give it,” he said. All governments of the European Union, as well as Parliament, must approve the bill.
Since 2016, authorities in the European Union have been trying to develop a regulatory framework for cryptocurrencies and the FinTech ecosystem. This is one of the organizations most open to the adoption of cryptocurrencies, which has even provided financial support for this type of project. The new laws for the cryptocurrency market will come alongside the development of a digital currency that the European Union has planned for around a year now.
By Alexander Salazar
