October 27, 2020

Brussels proposes first cryptocurrency regulation with stricter requirements for Libra




The European Commission has presented this Thursday the first set of rules to regulate the operation of cryptocurrencies in the EU, with the dual objective of promoting innovation but also protecting investors, and which provides stricter requirements for those such as Libra Facebook presents more risks to the block’s financial stability.

The vice president of the Community Executive responsible for Financial Services, Valdis Dombrovskis, has detailed in a press appearance all the documents that make up the Package on Digital Economy, with which Brussels intends to be at the global forefront in setting standards for the financial sector from the future.

Within this set of measures are the two regulations with which the Commission wants to legislate the business of cryptocurrencies, as many European capitals and recently the four great powers had claimed: Germany, France, Spain and Italy, with the support from the Netherlands.

Thus, the draft regulation on Cryptoactive Markets (MICA) covers all types of cryptocurrencies, including those that until now were outside other European regulations on financial markets. In addition, it provides stricter requirements for so-called ‘stablecoins’, which are those whose value is linked to another asset, such as an official currency or a commodity.

“There are special rules for stablecoins, such as Facebook’s Libra. They will be subject to more stringent requirements. The reason for this is the vast potential size these assets can have in terms of users, which could pose specific challenges for stability. financial “, the Latvian explained.

The new rules, which still need to be approved by the European Chamber and the countries, will require cryptocurrency service providers (mainly exchange platforms or portfolio managers) to have a physical presence in the EU in order to operate. In addition, they will have to obtain an authorization from the competent national authorities.

On the other hand, they will have to meet a series of capital requirements and governance standards, as well as keep their clients’ assets separate from their own.

Regarding cryptocurrency issuers, future rules will force them to publish a ‘white paper’ with all relevant information about their asset. These documents must include information about the project and the intended use of the funds, as well as the conditions, rights, obligations and associated risks.

Stablecoins will also have to comply with a series of rules on conflict of interest, publish their stabilization mechanism, follow certain investment rules and submit additional documents, reports Ep.

Projects like Facebook’s Libra will also be subject to closer scrutiny. Specifically, the supervision of the ‘stablecoins’ will be shared and will be in charge of both the national authorities and the European Banking Authority (EBA) with regard to the additional requirements.

The surveillance of the rest of the cryptocurrencies will be the responsibility of the competent authorities of the Member State in which they are located. In those cases where competence is shared, the two countries involved will have to designate a “point of contact”.

The other draft of the regulation on cryptocurrencies proposes the implementation of a “pilot regime” so that market platforms can begin to negotiate and settle operations of financial instruments in the form of digital assets.

Firms will thus be able to experiment in an environment in which “temporary derogations” of the current rules will be allowed so that they “can gain experience in the use of the technology” on which these types of assets are based, while ensuring that risks relating to investor protection, market integrity and financial stability can be “dealt with”.

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