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Proposal for a regulation of the European Parliament and of the Council on markets in crypto-assets

In “A Europe Fit for the Digital Age”

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Crypto-assets are defined as digital assets that may depend on cryptography and exist on a distributed ledger. A basic taxonomy distinguishes between

  • payment tokens (means of exchange or payment)
  • investment tokens (have profit rights attached) and
  • utility tokens (enable access to a specific product or service).

The Commission is of the view that, where crypto-assets are not covered by EU financial regulation, the absence of applicable rules to services related to such assets  leaves consumers and investors exposed to substantial risks. In addition, the fact that some Member States have put in place bespoke rules at national level for crypto-assets that fall outside current EU regulation, leads to regulatory fragmentation, which distorts competition in the Single Market, makes it more difficult for crypto-asset service providers to scale up their activities cross-border and gives rise to regulatory arbitrage. Lastly, the crypto asset subset of 'stablecoins' can raise additional challenges if it becomes widely adopted by consumers.

The initiative aims to support innovation and fair competition by creating a framework for the issuance, and provision of services related to crypto-assets. In addition, it aims to ensure a high level of consumer and investor protection and market integrity in the crypto-asset markets, as well as address financial stability and monetary policy risks that could arise from a wide use of crypto-assets and DLT-based solutions in financial markets.

Opinions were issued by the European Central Bank (February 2021), the European Economic and Social Committee (March 2021), and the European Data Protection Supervisor (June 2021).

The Council agreed on a negotiating mandate on the proposal on 24 November 2021.

The Committee referral was announced in plenary on 13 November 2021. In the European Parliament, the proposal has been referred to the Committee on Economic and Monetary Affairs (ECON); the rapporteur is Stefan Berger (EPP, Germany). The committees from which opinions have been requested are Budgets (BUDG), Industry, Research and Energy (ITRE), Internal Market and Consumer Protection (IMCO), Civil Liberties, Justice and Home Affairs (LIBE) and Legal Affairs (JURI), all of which decided not to give an opinion.

The draft report was presented in ECON Committee on 25 February 2021, tabled for plenary on 17 March 2022 and on 23 March, the Committee decision to enter into interinstitutional negotiations was announced in plenary. The most notable changes the report would bring to the proposal relate to a more specific definition of crypto-assets and scope, in particular clarifying that the new regulation would not apply to utility tokens unless offered for investment purposes (recital 9) and asking technically further specific definitions to ESMA. It also inserts and defines 'offerors' of crypto-assets, a legal person who offers to the public any type of crypto-asset or seeks the admission of a crypto-asset to a trading platform for crypto-assets. The report also proposes enhanced information provisions and supervision suggesting the establishment of a single EU supervisor. The report strengthens the powers of the EBA for the request of specific information regarding EMTs (Art. 104a). Finally, the report also introduces considerations for the environmental impact of crypto-assets and relevant information should be provided in the white paper.

Inter-institutional negotiations (trilogues) started in April 2022 and a provisional agreement on the proposal was reached on 30 June 2022.

The main feature of the provisional agreement is the reinforcement of safety measures. Those include the allocation of key reserves so that the assets are backed by the equal value of referencing currencies (1:1 rule), with seniority on the reserves given to crypto-assets holders. The issuer of crypto-assets also must provide a redemption plan in case of distress so that crypto-asset holders are guaranteed to receive equivalent currencies. Redemption is also without delay, avoiding liquidity issues. The text also reaffirms EBA as the lead regulator and supervisor, while relevant information will be transmitted to ESMA. The issuer being present in the EU is a precondition to issuance. The text also widen the regulation to offerors and service providers of crypto-assets, rather than to issuers only.

The Council's Permanent Representatives’ Committee (COREPER) meeting of 5 October 2022 endorsed the final compromise text with a view to agreement. The text was approved in committee at 1st reading on 10 October 2022.

The date of the vote in plenary took place on 20 April 2023, and the Council adopted the Act on 16 May 2023.

The final act was signed on 31 May, and the regulation was published in the Official Journal on 9 June 2023.

References:

Further reading:

Author: Issam Hallak, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/03/2024.