The European Commission, on the 24th of September 2020, adopted a new framework called the Digital Finance Package. This framework includes a Digital Finance Strategy, Legislative proposals on crypto-assets, a Retail Payments Strategy and Legislative proposals on digital operational resilience.
This is part of Europe’s effort to regulate crypto-assets and crypto-currencies, in an attempt to boost its financial competitiveness and become a global standard-setter in this field, while ensuring consumer protection and financial stability.
We thank our friends at the European Federation of Financial Advisers and Financial Intermediaries (FECIF) for the below analysis of this package:
- Digital Finance Strategy: This will reduce fragmentation in the digital single market so that consumers can have access to financial products across borders, and that Fintech start-ups scale up and grow. It will ensure that the EU financial services rules are fit for the digital age, for applications such as artificial intelligence and blockchain. In keeping with the Commission’s broader Data Strategy, the objective of the measure is to promote data sharing and open finance, while maintaining the EU’s very high standards on privacy and data protection. Finally, the Strategy aims to ensure a level playing field among providers of financial services, be they traditional banks or technology companies: Providers with the same activity will face the same risks, as well as the same rules.
- Retail Payments Strategy: Aimed towards modern and cost-effective payments, the Strategy aims to bring safe, fast and reliable payment services to European citizens and businesses. It will make it easier for consumers to pay in shops and make e-commerce transactions safely and conveniently. It seeks to achieve a fully integrated retail payments system in the EU, including instant cross-border payment solutions. This will facilitate payments in euros between the EU and other jurisdictions. It will promote the emergence of home-grown and pan–European payment solutions.
- Legislative proposals on crypto-assets: Aimed towards seizing opportunities and mitigating risks. The Commission proposed, for the first time, new legislation on crypto-assets (a digital representation of values or rights that can be stored and traded electronically). The ‘Regulation on Markets in Crypto Assets’ (MiCA) will boost innovation while preserving financial stability and protecting investors from risks. This will provide legal clarity and certainty for crypto-asset issuers and providers. The new rules will allow operators authorised in one Member State to offer their services across the EU (“passporting”). Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets (so-called global ‘stablecoins’) would be subject to more stringent requirements (e.g. in terms of capital, investor rights and supervision). The Commission is also proposing a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. The pilot regime represents a so-called ‘sandbox’ approach –or controlled environment– which allows temporary derogations from existing rules, so that regulators can gain experience on the use of distributed ledger technology in market infrastructures, while ensuring that they can deal with risks to investor protection, market integrity and financial stability. The intention behind this is to allow companies to test and learn more about how existing rules fare in practice.
- Legislative proposals on digital operational resilience: This proposal aims to close the door to cyber-attacks and enhance the oversight of outsourced services. Technology companies are becoming more and more important in the area of finance, both as IT providers for financial firms, as well as providers of financial services themselves. The ‘Digital Operational Resilience Act’ (DORA) aims to ensure that all participants in the financial system have the necessary safeguards in place to mitigate cyber-attacks and other risks. The proposed legislation will require all firms to ensure that they can withstand all types of Information and Communication Technology-related disruptions and threats. The proposal also introduces an oversight framework for ICT providers, such as cloud computing service providers.
The official documents used as sources and analysed here can be found at:
•Proposal on a pilot regime for market infrastructures based on distributed ledger technology,
•Proposal on digital operational resilience.
More information is available here.