Along with Asia and North America, Europe remains one of the top crypto hubs in the world. What are the rules for digital assets in the Europe.
In the spring of 2021, the Switzerland based World Economic Forum (WEF) released a report analyzing the use cases of blockchain technology in various traditional financial asset classes.
The authors of the report state that there are well known difficulties for the European crypto market first of all, the lack of uniform standards in the Europe.
BCG Platinion Managing Director Kai Burchardi highlighted one of the key regulatory challenges in the Europe: now there are separate solutions for each class of financial assets in the Europe.
“To realize market opportunities, we need interagency agreements,” he stressed.
The main problems of the market stem from the very structure of the Europe: each country has its own laws and approaches to the regulation of cryptocurrencies. Nevertheless, the Europe member states still managed to achieve some consensus.
Fifth EU Anti-Money Laundering Directive
The fifth Europe Anti-Money Laundering Directive (5AMLD EU), sometimes known as “Anti-Money Laundering,” went into effect in January 2020.
Trusts and similar structures must provide open access to centralized registries of beneficial owners of company owners, as required by the directive; the directive prohibited European financial institutions from providing anonymous safety deposit boxes and required these customers to be identified within six months of the directive’s entry into force.
Most of the existing cryptocurrency exchanges and platforms, which were obliged to comply with all the requirements of the law in terms of KYC and AML, fell under the definition of a virtual currency given in 5AMLD EU.
The market reacted immediately. For example, Europe based major cryptocurrency exchange Deribit has announced that it is moving to Panama.
Further work on legal regulations has been spurred by the pandemic, increasing the share of online settlements and digital payments.
The European Commission in Brussels began drafting amendments to the Fifth Directive, and in September 2020 issued a 168-page document tightening capital controls and investor protection requirements.
At the same time, the European Commission announced its plans to create a regulatory sandbox where it would be possible to test blockchain products.
Unified regulation
The European Commission has repeatedly emphasized that in relation to cryptocurrencies, it seeks to support the pan European structure and avoid legislative and regulatory fragmentation.
In September 2020, the EC proposed a pilot regime for companies that want to issue financial instruments in the form of cryptoassets. These included tokenized stocks, tokenized bonds, and similar products.
For the rest of the crypto assets – for example, service or payment tokens, the commission proposed the MiCA (Markets in Crypto Assets) regulation.
Over time, MiCA should replace all other Europe rules and local Europe rules that govern the issuance, trade and storage of crypto assets.
At the same time, the implementation of MiCA assumes that the European regulator – the European Securities Market Supervision Authority (ESMA) – will deal with the regulation of cryptoassets.
In February 2021, the chairman of the main financial regulator of France Autoroute des Marches Financiers and one of the leaders of ESMA, Robert Ofel, said that this department should become the main body for regulating and supervising the circulation of cryptocurrencies in the Europe.
CBDC
The issue of the digital currency of the European Central Bank (ECB) was actively discussed in 2020. In September, the ECB working group investigated the feasibility of issuing a CBDC, while ECB lawyers filed an application for registration of the “Crypto euro” trademark.
In October, the regulator presented a report, began a survey among Europe residents about the need to issue a digital currency and announced experiments on its development and implementation.
In April 2021, the European Investment Bank (another pan-European bank owned by Europe countries) issued the first € 100 million worth of digital currency on the Ethereum blockchain.
The calculations used a CBDC issued by Banque de France, a solution for security tokens was provided by Societe Generale, a participant in Banque de France’s wholesale CBDC experiments.
However, the population of the European Union is still wary of the idea of digital money.
On April 14, 2021, the ECB published a report on the results of a three month survey of Europe citizens on the digital euro: 53% of EU citizens prefer cash payments, 34% prefer a hybrid approach and only 13% are ready to use the digital euro.
One of the main problems remains the difference between countries within the Europe: for example, Italy, Portugal and Latvia prefer a hybrid approach, while Germany, Austria and the Netherlands prefer offline systems.
The respondents named the main advantage of cash its confidentiality, considering it a higher priority than security. The most popular answer is “I want my payments to remain private.”
Germany
Germany recognized Bitcoin as a financial instrument in March 2020. Already in August 2020, the Ministry of Finance and the Ministry of Justice of Germany promulgated a bill to regulate electronic securities in the country (eWpG-E).
The EWpG-E Digital Assets Act allows securities to be issued electronically using distributed ledger technology. Thus, it gives issuers a choice to issue securities using a certificate or electronically.
So far, this only applies to bearer bonds and some bearer share certificates.
In 2020, more than 50 cryptomats were installed in Germany, the rules for their providers are spelled out by law.
At the end of 2019, banks were allowed to sell and store crypto assets in accordance with the 5AMLD EU requirements. But in December 2020, trading in crypto derivatives was effectively banned by a new taxation regulation.
However, in early May 2021, the German Federal Financial Supervision Authority (BaFin) recognized cryptocurrencies as financial instruments. On July 1, the German Federal Council approved the law passed by the Bundestag.
The document allowed German investment funds to invest up to 20% of managed funds in digital assets. It is expected that as a result of the adoption of the law, more than € 300 billion can be invested in the field of Cryptocurrency.
France
In April 2020, the French Financial Markets Authority (AMF) defined cryptocurrencies as “a digital asset based on cryptography and existing in a distributed ledger”.
In October of the same year, the Minister of Economy and Finance of France Bruno Le Maire announced amendments to tighten the regulation of cryptocurrencies in the country.
The official cited drug trafficking, terrorism and money laundering that use Cryptocurrency as the reason for the tightening.
In December last year, authorities announced a plan forcing companies to verify users who carry out cryptocurrency transactions.
Against the background of tightening regulatory measures, France is actively moving forward in the field of tokenization.
In March 2020, the Central Bank of France began to study the topic of CBDC, in May it sold securities for the digital euro, and in September 2020, France announced the launch of CBDC based on the Tezos blockchain.
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