How to Regulate Crypto Assets: Is There a Unique European Answer?

Until now, individual countries in the European Union have been implementing their own regulation policies for crypto assets (if they have any policies at all.)  But how long will that be able to go on, without a European regulation system?  Industry specialists are working to make that happen, but finding an all-encompassing answer in such a diverse region is a challenge.  This panel, moderated by CNN’s Hadas Gold, brought together members of the EU commission and other European regulatory entities to discuss how such a policy could be created, and if it is necessary.  


The panel included people who are actively helping to decide what an EU regulation would look like, including:

  • Jennifer D’hoir, Senior Advisor at Gide Loyrette Nouel
  • Peteris Zilgalvis, Head of Unit for Digital Innovation and Blockchain at the EU Commission
  • Patrick Armstrong, Senior Officer at the European Securities Markets Authority  
  • Gundars Ostrovskis, Senior Economist at the EU Commission


Here are some key takeaways:

  1. Why haven’t more European countries created legislature for blockchain? 
  2. Crypto assets have upgraded from the “wait and see” stage to the facilitation stage
  3. The European Blockchain Partnership acts as a “regulatory sandbox”
  4. Does the EU need to create new laws, or should they make policies based on current laws? 
  5. Should Europe follow the example of France’s PACTE Bill? 
  6. How can Europe come to a consensus about what qualifies as a financial instrument?


  1. Why haven’t more European countries created legislature for blockchain? 

Some countries in the EU, including France, the Czech Republic, and Poland, have already started implementing regulations, but others are still more hesitant.  The EU Commission’s Peter Zilgalvis noted that “some countries see cryptocurrencies as a threat, and others see it as a potential.”  However, more EU states might not be able to avoid considering blockchain for much longer, as in 2017 alone EU blockchain startups raised 750 million euros through ICOs, representing a fifth of all funds raised through ICOs globally.  Jennifer d’hoir added that it’s important for the governments in EU countries to become very open to new innovations, if they are going to support their countries being “startup nations.”  This means implementing regulations, new laws, and other initiatives that facilitate the creation and expansion of crypto assets. The political world needs to follow the startup nation atmosphere that is emerging in Europe, especially since major companies like Carrefour and Engie are already adopting blockchain technologies.  

  1. Crypto assets have upgraded from the “wait and see” stage to the facilitation stage in the ESMA

Patrick Armstrong explains how from a regulator’s perspective, they can take 3 approaches to innovation: “banning,” “wait and see,” or “facilitating.”  The facilitative approach is implemented once innovations reach a “tipping point,” meaning it has become “too big to ignore.”  The ESMA has taken a facilitative approach with crypto assets, but distributed ledger technology is still in the “wait and see” stage.  Peteris Zilgavis adds that the regulation needs to prevent fragmentation, by creating a “single digital market where entrepreneurs, consumers, and citizens can utilize the space for all 28 at the moment member states, and 500 million citizens and consumers for their products.”


  1. The European Blockchain Partnership acts as a “regulatory sandbox” 

Peteris Zilgavis explains that the European Blockchain Partnership, made of 29 countries, is currently working on enforcing an infrastructure that focuses on RegTech, diplomas and the certification of audit documents.  In the future, they aim to “utilize smart contracts and tokenization in order to run their systems.”  The organization is approaching innovation in the sphere as a “regulatory sandbox,” so that they can “learn by doing” for blockchain, artificial intelligence, the Internet of Things, machine learning, and more.  


  1. Does the EU need to create a new law, or should they make policies based on current laws? 

According to Jennifer D’hoir, the EU tends to do both.  She thinks that there should be a law for the entire European Union, so that there will be a single digital services market, and that it should be creative like France’s PACTE Bill.  Patrick Armstrong added that the European Commission is already looking at existing legislation like the Settlement Finality Directive for cryptocurrencies that already classify as financial instruments under MiFID.  For the tokens that don’t classify, or “utility tokens,” they have recommended that the Commission create a “minimalist regime” around the issuance of white papers in order to protect investors, because the existing white papers have varying levels of legitimacy. 


  1. Should Europe follow the example of France’s PACTE Bill? 

France has adopted one of the most comprehensive regulatory frameworks for blockchain with the PACTE Bill. The bill extends the regulatory perimeter to cover utility tokens as well, which means all of the tokens that don’t qualify as a financial instrument under MiFID.  Additionally, it includes an optional visa for ICO issuance from the AMF that will help companies convey trust to customers.  Jennifer d’hoir says that the purpose of the act was to provide flexibility for the market players, and at the same time to convey trust, “because if you opt in, you’re in, and you are supervised partly and mainly by the French AMF.”  


  1. How can Europe come to a consensus about what qualifies as a financial instrument? 

According to Gundars Ostroviskis, the DG FISMA asked the European Banking Authority and the European Securities Market Authority about the applicability of a regulatory framework for crypto assets, and they confirmed that some crypto assets qualify as financial instruments, and are therefore subject to EU regulatory frameworks.  However, these frameworks weren’t created specifically for them, so they might not be totally accurate.  Therefore, they will need to perform legislative screening to verify that the existing frameworks are relevant for those types of assets.  On the other hand, for the crypto assets that aren’t relevant to the existing frameworks, they may have to create new rules or to see if other EU guidelines could be appropriate. They are aiming for a solution that would cater to existing crypto assets, assets issued via ICOs, security token offerings, and on exchanges, and to allow for tokenization of traditional financial instruments, to “enable a level playing field between the traditional financial sector players and the crypto industry.”


This was only a sample of the takeaways from the “How to Regulate Crypto Assets - Is There a Unique European Answer?” panel.  The full transcript of the panel is available below for more insights.

  


VieW FULL TRANSCRIPT