Why did we need the digital finance package?
Crypto-assets and their underlying technology present considerable opportunities but are also associated with considerable risks, stemming largely from the fact that most of them have remained so far unregulated. That has caused massive problems, as a high portion of digital businesses were exposed to scammers and hackers.
The Digital Euro as a key use case
A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money. The Digital Euro could avoid possible undesirable implications for the fulfillment of its mandate, for the financial industry and for the broader economy.
How did the European Union address the digital finance strategy?
- Tackling fragmentation in the Digital Single Market for financial Fewer obstacles to cross-border operations would enable European consumers to access more cost-effective products and services, and would help European financial firms scale up their digital operations to increase their efficiency. To achieve these objectives, some adjustments are needed to ensure the legal framework enables the use of interoperable digital identity solutions.
- Ensuring that the EU’s regulatory framework facilitates digital innovation in the interest of consumers and market efficiency. Given developments in technology, the Commission has taken a pro-active approach and proposed adjustments to the EU’s financial services legislation and supervisory practices to ensure that they remain relevant in the digital age. This is precisely the reason why the Commission has today come forward with legislative initiatives on crypto-assets.
- Creating a European financial data space to promote data-driven innovation, building on the European Data Strategy. Enhanced access to data and data sharing within the financial sector will encourage the financial sector to embrace data-driven innovation. This should lead to more innovative products for consumers and businesses. At the same time, the Commission is particularly vigilant about ensuring consumers remain in charge of their data. Therefore, compliance with data protection rules, in particular the General Data Protection Regulation (GDPR) is a pre-requisite for a financial sector driven by data.
- Addressing challenges and risks associated with the digital transformation, in particular to promote resilience, data protection and appropriate prudential supervision. As part of today’s package, the Commission presented a legislative proposal on digital operational resilience. Particular attention has been paid to the principle “same activity, same risk, same rules” to ensure consumer protection and to ensure a level playing field between existing financial institutions and new market entrants.
The principle of the digital finance package
Same Risks - Same Rules - Same Regulation!
Crypto-asset service providers and notably trading platforms, exchanges, and custodial wallet providers will be required to have a physical presence in the EU and they will be subject to prior authorization from a national competent authority before starting their activities. They will be subject to capital requirements, governance standards, and an obligation to segregate their clients’ assets from their own assets. These crypto-asset service providers will also be subject to IT requirements to avoid the risks of cyber thefts and hacks.
Digital Finance Checklist
- Subject to prior authorization from a national competent authority before starting their activities
- Physical presence in the European Union – Great time to think about the Digital Nation Estonia –
- IT Requirements
How will the digital finance supervision work?
Supervision will in principle fall upon the authorities of the Member State where providers are based. In case supervision is divided between several competent authorities because activities are cross-border, it will be up to the Member States concerned to designate a single point of contact.
The issuers of significant asset-referenced tokens (also known as so-called ‘stablecoins’) will be supervised by the European Banking Authority, because these instruments are likely to pose significant risks for financial stability and consumer protection in many different Member States. Issuers of significant e-money tokens will be subject to dual supervision from national competent authorities and the European Banking Authority (for the additional requirements imposed due to the increased risks posed by significant e-money tokens).