This approach by the European Commission in favour of the development of digital finance in the European Union is unprecedented in that it combines:

• a new Strategy on digital finance for the EU financial sector taking the form of a communication addressed to the European parliament, the council, the European economic and social committee and the committee of the regions;
   
• legislative proposals for new regulatory texts including a proposal for a regulation on markets in crypto assets, a proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT); a proposal for a regulation on digital operational resilience for the financial sector; and
   
• a proposal for a directive to clarify or amend certain related EU financial services directives.

Awaited European recognition

These guidelines and legislative proposals illustrate the Commission's desire to make the European Union a market for crypto-assets that inspires confidence in an unregulated environment, and to harmonise the domestic rules that exist in certain European countries.

Among the various topics covered in these publications, crypto-assets appear at the heart of the regulatory strategy set forth by the European Commission.

Indeed, certain Member States have implemented local "crypto" regulation initiatives, with France being one of the first jurisdictions to have responded very quickly to "crypto" players (cf. the PACTE law and the regime introduced for Initial Coin Offerings  and Digital Asset Service Providers). Crypto-asset issuers and players offering services related to these new digital instruments were nonetheless awaiting a European response regarding the extension of their activities within the single market. With these publications, the European Commission offers an answer to these expectations.

Regulation similar to that of the financial instruments markets

First of all, the European Commission is considering structuring measures dedicated to crypto-assets that are not financial instruments and related services are part of the draft regulation dedicated to "markets in crypto-assets", known as MiCA. By introducing a mandatory licensing regime for players offering services on crypto-assets^[1], together with a European passport mechanism, the text suggests regulations similar to those applicable to the financial instruments market.

Next, the draft MiCA regulation also covers stablecoins, or new forms of digital currencies. This category of crypto-assets, which has been the subject of much controversy at international level given the stakes involved in monetary policy and sovereignty, finds potential answers in the draft regulation about the legal handling of their issuance and exchange.

An unprecedented pilot regime for the security tokens market

Lastly, the European Commission addresses the use of these new digital instruments to the financial field, and suggests two lines of reform. The first provides for adjustments to the regulation of financial instruments, and the issues at stake in terms of cybersecurity^[2] and resilience. The second, which is unprecedented in European regulation, provides for the introduction of a "pilot regime"^[3] for financial tokens listed and traded via a blockchain, i.e. security tokens.

The proposed pilot scheme sets itself apart from other measures under consideration in that it is innovative and proposes a system of exemptions targeted at the security tokens market subject, in particular, to volume restrictions.

Above and beyond the common sense rules that were expected in order to provide legal comfort to these new markets, the European legislator will now listen to the opinions of stakeholders to ensure that it does not create hurdles to the development of this part of the digital economy. Debates and work will thus begin at European level while many questions are still being posed. It will therefore now be necessary to make this set of regulations consistent with the technological and economic specifics of these new instruments and their related services.

>> Click here to find out more about the pilot regime

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[1] For instance, the purchase or sale of crypto-assets for legal tender, custody of crypto-assets, and crypto-asset investment advice.

[2]  Proposal for a Regulation of the European Parliament and of the Council on digital operational resilience for the financial sector and amending Regulations (EC) No 1060/2009, (EU) No 648/2012, (EU) No 600/2014 and (EU) No 909/2014 - COM(2020)595.

[3]  Proposal for a Regulation of the European Parliament and of the Council on a pilot regime for market infrastructures based on distributed ledger technology, COM(2020) 594.

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