France’s top financial regulator has called for a shake-up of how “crypto-assets that qualify as financial instruments” are supervised, a move that could have big implications for digital asset providers in the bloc.
Robert Ophèle, Chairman of Autorité des Marchés Financiers (AMF), said the growing interest in the issuance of financial instruments on the blockchain in recent years has created challenges for regulators that required a new approach. Additionally, he proposed ESMA to be the competent authority for this new field of regulation, including the supervision of crypto-asset service providers.
“First, this would be the best way to guarantee a level playing field in the EU. Second, as this regulation is brand new, it is easier to provide ESMA with competence from the outset than if this is considered at a later stage. Moreover, it would make sense to gather all the expertise within the same authority, since the cost of entry in the crypto-world is quite high,” Ophèle said.
Ophèle added that the European regulation around stablecoins and pure crypto-assets (dubbed ‘MiCA’) already closes a loophole, but a pilot regime for crypto-based instruments will prepare financial markets for the future.
Moreover, the proposed ‘Pilot Regime’ covers market infrastructures for blockchain firms wishing to trade and settle transactions involving crypto-based financial instruments. While this type of crypto-related products could be supervised by the authority in their home country elsewhere. In fact, this creates a fragmented regulatory environment.
The French regulator has suggested more enabling regulations, including a regulatory sandbox for the security token industry. He believes that the current rules hinder the growth of blockchain technology in the region as they were designed for centralized systems. As such, the AMF Head said that the ‘Pilot Regime’ will enable authorities to waive certain regulatory requirements relating to securities settlement in return for appropriate guarantees.
“The potential gains to be expected from DLT can be significant. DLT would reduce risks, both by speeding up the market chain and by its distributed nature that could mitigate some cyber risks raised by centralised market infrastructures, such as the single point of failure. The use of DLT could also decrease costs using smart contracts that could simplify many back office processes. It is also a question of keeping Europe competitive at a time when similar approaches are now being rolled out in many countries,” Ophèle added.
The European Commission published in September its EU legislative framework for crypto assets, which came as part of the broader policy initiative on digital finance. The proposal offers a bespoke legislative regime for markets in crypto-assets and relevant service providers not covered elsewhere in the EU financial services regime.
In addition, MiCA will offer a pilot regime for crypto-related market infrastructures, which represent a so-called ‘sandbox’ approach. The term has particular relevance for the crypto industry, and the EU scheme was described as a controlled environment under which new firms or new ventures from established brands would be able to test their ideas live.
Furthermore, the commission explained that successful applicants can test their new products without the cost of overheads such as compliance and exhaustive consumer protection. This allows ‘temporary derogations from existing rules’ so that regulators can gain experience on the use of distributed ledger technology in market infrastructures while ensuring that they can deal with ‘risks to investor protection, market integrity and financial stability’.
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