Brussels / The European Commission presented this Thursday a proposal to regulate for the first time in the European Union all cryptocurrencies, which will be monitored by national and community authorities, will have to be previously authorized and will have to introduce safeguards based on their level of risk.
The proposal comes after the Governments of the Twenty-seven have warned of the risks that virtual currencies can pose, especially if they have a wide scope, as is the case of Libra, the stable currency project of the social network Facebook.
Cryptocurrencies – such as Bitcoin, Ripple or Ethereum, some of the best known – digitally represent a security or rights that are transferred electronically and can be used to access certain services, make payments or function as financial instruments in which to invest, for example.
These virtual currencies can provide fast and cheap payment solutions, but at the same time create challenges in terms of consumer protection, privacy, taxation, cybersecurity, money laundering, terrorist financing, and even financial stability.
The legislation proposed by the Commission covers all cryptocurrencies based on their level of risk, including those that were already regulated by other community regulations, as well as the service providers linked to them.
“It will allow companies to take advantage of the possibilities of these assets, but it mitigates the risks for investors and preserves financial stability. Global stablecoins such as Facebook’s Libra will be subject to stricter regulations, ”explained EC Vice President for Economic Affairs, Valdis Dombrovskis, at a press conference.
Because of the large number of users it could reach, it poses a challenge for financial stability and also requires more safeguards in terms of fraud and money laundering, he said.
Cryptocurrency service providers, in particular exchange or custody platforms, will have to have a physical presence in the EU and receive the approval of the competent national authorities to operate.
In addition, you must meet capital requirements, in terms of governance, and separate your own assets from those of your clients.
However, if they receive authorization in one country they will obtain the so-called European “passport” that will allow them to operate throughout the EU.
Cryptocurrency issuers, for their part, will have to prepare a document with all the relevant information for investors about what use will be made of the funds, risks, obligations, etc.- and “misleading information” is prohibited.
The requirements will be stricter for issuers of stablecoins, those linked to a real currency such as the dollar or the euro or to a material good such as gold. Its objective is to limit the volatility that characterizes other virtual currencies such as Bitcoin, which is not backed by a traditional asset.
In addition to needing prior authorization and complying with the same governance or consumer information standards, they must guarantee stablecoin holders the right to claim, to withdraw their investment directly from the issuer if its value changes significantly, and to be paid if the issuer stops operating.
Cryptocurrency issuers will be under the supervision of national financial supervisors, while in the case of those that work with stable currencies, the European Banking Authority (EBA) will be in charge of supervision.
In the case of stablecoins with a global scope, supervision will be both national and by the EBA.
But Brussels does not want to cut its wings to the development of this type of assets in a context in which the demand for new payment methods and sources of financing, especially digital, is growing.
For this reason, it will create a “pilot regime” for companies that want to implement a decentralized registry system to issue or trade cryptocurrencies that function as financial securities.
This will allow the temporary repeal of current regulations so that companies can experiment with this technology, but within an environment controlled and monitored by national regulators and the European Securities and Markets Authority.
In this way, companies will be able to innovate, and the authorities take note of possible problems or risks in the system.
The cryptocurrency legislation is part of the EU’s efforts to promote digital finance and to enter into force it will still have to be approved by the Member States and the European Parliament. (September 25, 2020, EFE / PracticaEspañol)
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