Changes from report parliamentary committee draft to plenary report

In this report, we explore the impact of the emergence of digital assets on the financial services sector and what that means for the regulatory framework. Digital assets refer generally to any digital representation of value that is recorded on a cryptographically secured distributed ledger.

Some principles are useful as a starting point. The aim should be a system-wide, activity-based and technologically neutral viewpoint. While distributed ledgers may overhaul the financial infrastructure, it does not change any economic functions in se, such as trading, clearing and settlement. New technologies always come with new challenges. The regulatory framework can hardly be called technologically neutral for all future developments and needs to adapt to changing realities. It needs to find a balance between spurring innovation and preventing too much space for regulatory arbitrage.

The EU has passed legislation that forms a framework for crypto-assets in the Regulation (EU) 2023/1114 on markets in crypto-assets (MiCAR). Crypto-assets that qualify as financial instruments under existing Union law remain subject to the relevant sector-specific legislative frameworks.

On the one hand, several risks remain for the digital assets sector. From a macro-prudential perspective, data capabilities need to be strengthened to get a better sense of financial risks and the interconnectivity with other parts of the financial services. Multi-function groups that create links between different types of crypto-assets should be subject of scrutiny. Crypto-assets are also still too often used to evade AML-CFT regulations and sanctions. One aspect of stablecoins in need of legal clarity is the topic of multi-issuance, which only came under attention after the enactment of MiCAR.

On the other hand, the usage of distributed ledgers in the financial services sector could enhance efficiency and connectivity, among other benefits. Tokenisation also allows to use distributed ledger technology for existing financial assets, with the potential of reducing costs and improving transparency. Much trial and error will still be necessary to discover advantages, whereas vulnerabilities will need to be monitored.

Finally, the future of digital finance is not only taking shape in Europe. It is imperative for Europe to be part of the global conversation. Both in terms of risk-management and in terms of transformation of the financial infrastructure, it will be necessary to discuss cooperation, standards, interconnectedness, equivalence and regulatory requirements.