On 29 January, the European Commission adopted its 2020 Work Programme. It sets out the actions the Commission will take in 2020 to turn the Political Guidelines of President von der Leyen into tangible benefits for European citizens, businesses and society. The driving force behind this first Work Programme is to successfully grasp the opportunities that the twin ecological and digital transitions will bring. As regard the importance of adapting Europe to the digital age, the French financial market authority, the Autorité des marches financiers (AMF) published a document entitled “Building a European digital strategy for financial services” (Construire une stratégie numérique européenne dans les services financiers), which aims to contribute to the Commission’s objective of fostering innovation in the financial sector while ensuring investor protection, and proposes initial working suggestions to nourish the reflection in the face of the challenge of strengthening digital transitions in financial services in the European Union.
The AMF encourages the European Commission to develop a European digital strategy for financial services that would allow European players to innovate in a secure environment. In this regard, the AMF sets out a number of proposals and avenues of reflection and notably enable the digitalisation of financial instruments on blockchain by removing existing obstacles. The AMF considers that the “tokenisation” of finance is a major trend that should be supported by an appropriate framework to enable, notably, the development of primary and secondary markets for digital assets at European level and the development of a common and harmonised securities law. Regarding blockchain securities trading platforms, the current EU regulatory framework requires the presence of regulated intermediaries. The AMF thus raises the question of the extent to which risks still exist that justify the presence of such intermediaries and to what extent the regulatory status of these stakeholders should be adjusted accordingly. The same applies to the relevance of the central securities depositories (CSDs) status in a blockchain environment where settlement and delivery are instantaneous.
Despite several legal obstacles, one of the main avenues envisaged by the AMF, together with the amendment of current European legislation and the creation of tailor-made regulations governing securities in blockchains, would be to set up Europe‑wide experimentation areas (“sandboxes”) allowing competent national authorities (NCAs) to waive certain obligations prescribed by European regulations and identified as incompatible with the blockchain environment, provided that the entity benefiting from such exemption complies with the key principles of the regulations and is subject to enhanced oversight by its NCA. Such a system, which has already sparked reactions in France (notably regarding the identity of the person in charge of deciding of which “key principles” are subject to derogation and on “key principles” notion itself), would have the advantage of removing regulatory obstacles to the emergence of blockchain securities markets infrastructure projects that could be implemented in a secure environment without immediate changes to the European regulation, which could be introduced at a later stage, once the ecosystem is more mature and building on the expertise that NCAs would have acquired.
Nevertheless, all of these proposals would presuppose the existence and creation of an interbank stable settlement coin (actif de valeur stable permettant les règlements interbancaires) at the European level compatible with blockchain technology.
With regard to the lack of regulation for digital assets not falling under the definition of financial instruments within the meaning of MiFID II, the AMF considers that the implementation of such a framework at EU level would make it possible to harmonise AML/CFT supervisory practices on the one hand and to create conduct of business rules to ensure an effective price-setting mechanism that would ultimately provide greater security for investors on the other. The EU AML/CFT framework for digital assets should be reviewed in the light of the Commission’s work under the AMLD5 and the updated FATF Recommendations, taking into account the specificities of the blockchain environment. The AMF also believes that this framework should be supplemented by measures to regulate primary markets and intermediaries operating in this sector, drawing on the rules applicable to the regulation of financial services adapted to the specific characteristics of digital assets.
Further, one way of achieving a pragmatic approach fostering innovation would be to allow the competent authorities to send no-action letters to the firm that would benefit from the scheme, along the lines of the no-action letters used by the SEC.
Finally, as regard relations between cloud providers and financial institutions, the AMF calls for a pooling of resources on certain topics such as KYC and AML/CFT, since fragmented practices hamper the efficiency of European financial institutions. The associated risks are further exacerbated by the growing dependence on cloud services provided by a limited number of external providers, which poses serious problems in terms of business continuity and supervision. Against this backdrop, the AMF calls on the European authorities to set such risks management as one of the priorities on the European agenda.