The European Commission, as part of its efforts to create a “Digital Single Market” and further to build more competitive and innovative Capital Market Union, announced its FinTech Action Plan on March 8, 2018.1
The Action Plan sets out 23 steps to accomplish the following main objectives: enabling innovative business models to reach a European scale (based on a consistent licensing regime), supporting innovations and implementation of new technologies in the financial sector, and increasing its integrity and security.
Among the initiatives are:
- A proposal for an EU Regulation on investment-based and lending-based crowdfunding service providers (ECSP) for business. The regulation aims to set an appropriate and proportionate framework enabling crowdfunding platforms to operate cross-border under a comprehensive passporting regime and unified supervision;2
- An EU Public Blockchain initiative of the European Commission to develop a comprehensive strategy for implementation of distributed ledger technologies in all sectors of the economy, considering the associated legal implications;
- A public consultation on further digitalization of regulated information about companies listed on EU regulated markets, considering a possible establishment of a European Financial Transparency Gateway based on distributed ledger technology; and
- Hosting an EU FinTech Laboratory, which will serve as a platform for neutral exchange among European and national authorities with technology providers.
As part of the Action Plan, in February 2018, the European Commission launched an EU Blockchain Observatory and Forum, as well as a feasibility study of an EU public blockchain infrastructure to develop cross-border services. As part of its efforts to evaluate legal, governance issues, any scale-up opportunities and in attempt to support “interoperability and standardization” across Europe, the European Commission will continue the work on further possible implementations of distributed ledger technologies in the second quarter of 2018. It will utilise cooperation with standard-setting bodies, as well as other international authorities and organisations to attain its objectives.
Digital assets and initial coin offerings (ICOs) also attracted the focus of the European Commission. Together with the European Supervisory Agencies, the European Central Bank and the FSB, the European Commission will continue monitoring the developments in this subject area. Considering the risks associated with the digital assets transactions and the appropriateness of the regulatory framework, the European Commission will assess, by the fourth quarter of 2018, at what extend a regulatory action on an EU level is necessary.
In this context, last month the European Supervisory Agencies – EBA, ESMA and EIOPA – issued a coordinated warning to the consumers about the high risk of investment in virtual currencies associated with uncertainty in the regulation and their extreme volatility.3 This notification followed the alerts issued in November 2017 by ESMA to investors concerning the high risk of investing in ICOs and on the rules applicable to firms involved in ICOs.4
Additional aspects to consider when analysing digital assets include the impact of the General Data Protection Regulation (GDPR) entering into force in May 2018,5 the eIDAS Regulation6 and the recent proposal to extend the scope of the Anti-Money Laundering Directive to virtual currency exchanges and wallet providers.7
Finally, a further step forward in the regulation of digital assets and ICOs was taken outside the EU with the publication of the ICO Guidelines by FINMA (the Swiss Financial Market Supervisory Authority) on February 16, 2018. The document complements the FINMA Guidance 04/2017 and provides further information and clarification on how the authority aims to employ the financial markets legislation by dealing with ICO organisers.8