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EU moves forward on crypto regulation


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The EU has drafted a proposal for crypto regulation, it seems to be pretty comprehensive.

For bullet points / an overview check out the coindesk article. For more details see the press release or the draft.

I personally would be very much interested in more detailed statements of people with more legal expertise. Any links are appreciated.

 

Coindesk Article

Proposal Draft on politico (leak: 09/17)

Proposal Draft from 09/24 on EU servers

Press Release from the european commission

Some more Info:

conclusion of the consultation process on the digital finance strat of the EU

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1 hour ago, panmores said:

So... what does it all mean for XRP?

Hard to say how this may impact but a legal framework for all crypto should be positive.
Setting stablecoins apart with even more strict controles and rules, I also see as a positive sign.
After all XRP has a use case that will be better served by good regulations so this should be good.... I guess

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2 hours ago, panmores said:

So... what does it all mean for XRP?

It means that the quality of the environment in which XRP exists is improving and becoming more intertwined with the way the world actually works. Its like the water quality improving for all the fish in the aquarium, which is good for the individual fish (digital assets) and shows that the tank keeper is paying attention to the aquarium.

I need to read the details, but the De Minimis rule that England did (cant find link) was pretty significant for folks who trade between various digital assets. 

https://cointelegraph.com/news/token-taxonomy-act-includes-de-minimis-tax-exemption-for-crypto

I'd hope to see some moves like the OCC did in the US, but the Euro is structured differently I think. If the framework is through enough to enable large public companies to begin to invest directedly without exposing their firms to legal risks due to a lack of regulations then this would be a big step in the right direction.

Quote

https://ec.europa.eu/finance/docs/law/200924-crypto-assets-proposal_en.pdf

In addition to this proposal, the package also includes a proposal for a pilot regime on distributed ledger technology (DLT) market infrastructures2 , a proposal for digital operational resilience3 , and a proposal to clarify or amend certain related EU financial services rules4 .

One of the strategy’s identified priority areas is ensuring that the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to the application of new technologies. This proposal, together with the proposal on a DLT pilot regime, represents the first concrete action within this area

Ripple's wording "DLT" in the first paragraph.

Re Stable Coins...

Quote

 

Option 1 – bespoke legislative regime aimed at addressing the risks posed by ‘stablecoins’ and ‘global stablecoins’ By following a strict risk-based approach and building on recommendations currently being developed by, for example, the FSB, this option would address vulnerabilities to financial stability posed by stablecoins, while allowing for the development of different types of ‘stablecoin’ business models. These would include specific disclosure requirements for ‘stablecoin’ issuers as well as requirements imposed on the reserve backing the ‘stablecoin’. 

Option 2 – regulating ‘stablecoins’ under the Electronic Money Directive ‘Stablecoins’ whose value is backed by one single currency that is legal tender are close to the definition of e-money under the Electronic Money Directive. The aim of many ‘stablecoins’ is to create a “means of payments” and, when backed by a reserve of assets, some ‘stablecoins’ could become a credible means of exchange and store of value. In that sense, ‘stablecoins’ can arguably have common features with e-money. However, this option would require ‘stablecoin’ issuers to comply with existing legislation that may not be fit for purpose. Although the Electronic Money Directive and, by extension the Payment Services Directive, could cover some ‘stablecoin’ service providers, it might not mitigate adequately the most significant risks to consumer protection, for example, those raised by wallet providers. In addition, the Electronic Money Directive does not set specific provisions for an entity that would be systemic, which is what ‘global stablecoins’ could potentially become.

Option 3 - skipped to save words

The Commission considered that Option 1 was the preferred option for ‘stablecoins’ in combination with Option 2, to avoid regulatory arbitrage between ‘stablecoins’ that are indistinguishable from e-money and the treatment of e-money issued on a distributed ledger. Together with Option 2 (full harmonisation as described above) for other types of cryptoassets not covered by existing EU financial services legislation, these would create a comprehensive and holistic EU framework on ‘stablecoins’, capable of mitigating the risks identified by the Financial Stability Board28, in particular financial stability risks. The structure of ‘stablecoins’ is complex and comprises many interdependent functions and legal entities. The regulatory approach under Option 1 (in combination with Option 2 for hitherto unregulated crypto-assets) would cover the different functions usually present in ‘stablecoin’ structures (governance body, asset management, payment and customer-interface functions) and would also capture those interactions between entities that can amplify the risk to financial stability.

 

This is what I see happening. The Digital Assets are serving as collateral for the creation of non-CB Fiat. This is an expansion of the Fiat supply of a new nature. Gold would be up around the same tier as Digital Assets, where Gold Claims would be like Stable Coins. 

The key thing is the International Space, this is where the CB backed Fiat currencies encounter some headwinds. The USD has played Global Reserve for the past few decades, which has headwinds because it causes issues both for the US (good and bad) and for other participants in the global economy (China and others have been focused on dethroning the USD for at least 20 years).

It is this international space where Digital Assets and their derivative Stable Coins, can play with an advantage over CB issued Fiat, due to their digital nature, distributed trust and transportability at low cost.

Source, https://ieor.columbia.edu/files/seasdepts/industrial-engineering-operations-research/pdf-files/Mehrling_P_FESeminar_Sp12-02.pdf

SC = Stable Coin , DA = Digital Asset collateral.

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image.png.66f613c3d5406eba65151a957d09664b.png

 

Edited by KarmaCoverage
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A summary report of the European Commission says that the main barriers to operating truly cross-border and calling for further harmonisation are duplication in anti-money laundering requirements across member states, diverging know-your-customer applications, discrepancies in PSD2 transpositions, as well as differences in national consumer protection, consumer credit, and insolvency rules, and tax rules for cross-border services (source: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/2020-digital-finance-strategy-consultation-summary-of-responses_en.pdf).

Regulation will remove those barriers.

Edited by Danny
Corrected an incorrect hyperlink to the source
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4 hours ago, Julian_Williams said:

@KarmaCoverage brilliant post - thanks. 

Thank you, I effectively took a year off from XRP with the divorce and BS, it's nice to engage a little more again. I'm sure I missed something, but this stuff is also the first truly new market framework / dynamics innovation that I have seen with this wave of Stable Coins, Stable Coin regulation, and smart contract based Distributed Liquidity Pools.

There is a little bit more in depth conversation going on here. 

 

Edited by KarmaCoverage
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