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Regulatory Framework for Digital Assets by The European Union

European Justice ready to regulate cryptos

October 7, 2020 | 

1125 Views | 

JOHN K MWANIKI | 

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The European Commission has proposed new regulations for cryptocurrencies. The rules seek to turn the cryptos into a regulated financial instrument. 

The regulation is all about clarifying what crypto assets are. It will provide regulations for all the crypto entities. It will also guide the relationship between the token issuer and the holders. 

When successful, the regulations will make the EU the most formidable crypto space. The region will be the leader in crypto innovations and development. 

This article looks into the framework for the digital assets' regulations. By the end of this article, you should understand the need for regulations. You will also have known the main goals and elements of the rules. Furthermore, you will understand the benefits and the way forward. 

Let's get to it. 

The Need for the European Union Regulations 

The European Union is one of the most stable economic blocs in the world. It has a vibrant financial sector. It, however, currently faces a challenge. It is grappling with the new technological wave.

The developing technology has ushered in the cryptocurrency era. Several crypto businesses are coming up with new business models. Traders are fast embracing the cryptocurrencies.

The digital coins are decentralized in nature and anonymous. They are also cheaper and faster to transact with.  

The effects of the coronavirus have been dire on the economy. The traditional stocks are hitting the all-time lows. Cryptos, on the other hand, are booming. Traders are moving from stocks and other commodities to cryptos. The EU must now either embrace the cryptos or fail.

Even with the development, Bitcoins comes with newer risks. They are risky and prone to scams. The EU must regulate it to secure consumers and businesses. 

Bitcoin also needs regulations to attract newer industry players for economic recovery. This will end up protecting every other stakeholder. 

The Main Goals of the Crypto Regulatory Proposals 

The best way to address the need for regulations is by having goals. The proposed regulations seek to tackle fragmentation in the financial sector. It aims to ensure seamless cross-border transactions and access to cost-effective products. It will achieve this through a reliable legal framework. 

The regulations also seek to streamline the European data strategy. It wants to spur data-driven innovations in the financial sector. It intends to achieve this without compromising consumer data.  It will enforce the general data protection regulations. 

Still, it seeks to address the challenges that come with digital transformation. It has to ensure a safe operating environment for all the players. They should be safe and have a level playing field for the operations. 

Critical Elements of the EU Regulations Proposal 

The EU regulatory framework is broad. It covers the different players in the digital currency sector. Some of the elements of the proposal are; 

  • Crypto service providers to have a physical presence in the EU.

Setting up the crypto services in the EU will be like any other business. Businesses will have to undergo scrutiny for authorization by a national regulator. 
The service providers can only run after meeting the capital and regulation standards. They will also have to provide a segregate account for client assets. Their security systems must also be at par.

  • Protection from market abuse 

The lack of regulations has made the crypto market rife with manipulation. The new proposal protects the users by ensuring market integrity. It helps avoid market abuse through insider trading and manipulation. 
The law requires service providers to put in place measures against market manipulation. 

  • Detailed whitepaper 

A whitepaper is one of the most critical documents in the virtual currency economy. Still, not all the assets have been treating it as such. Some tend to provide false information on the records. Others also use hard to understand jargon, just as others don't provide it at all. 

The proposal makes it mandatory for every crypto-asset to have a white paper. 
The document must have all the relevant information. It should detail the project, funds, conditions, and risks. 

The whitepaper must also list the management with their qualifications. They have to meet various requirements. The same applies to the issuers of the e-money tokens and asset-reference tokens.

  • Adequate supervision

All the crypto-asset service providers are subject to surveillance. Regular monitoring ensures they meet the standards. The supervision can be by either a single entity or multiple authorities. 

Possible Benefits of the Regulations to the European Union 

The only way through which the proposal will gain support is on its benefits to the EU. From the outline, it comes with several benefits. It streamlines the financial sector for increased innovation. 

Some of the population is hesitant to join the digital money world due to the uncertainty. With the laws in place, the digital currencies become more user-friendly. 

The regulations would fasten the EU economic recovery strategy. New crypto-based industries are likely to come up. This broadens the block's economic transformation plans. 

The regulations are also significant for cross-border financial services

The Sterling Pound has been hugely successful due to the tight rules. It is one of the world's top currencies. A well-regulated crypto currency would go the same route. It will enhance integration in the banking and capital markets unions. 

A well-regulated financial sector leads to robust systems. The EU is likely to become the most preferred investment location. Every investor wants a regulated and controlled business environment. The stability that comes with the regulations is also excellent for business prosperity. It encourages liquidity as more people take up the coin. 

Bottom Line 

The EU regulatory framework on digital assets is excellent for cryptos. Even though still on the proposal stage, it is key to the EU's future economy. The different stakeholders in the financial sector need to cooperate to ensure its success. 

The commission is working with service providers, consumers, and other businesses. They are engaging the legislators and the supervising authorities. Cooperation ensures the passing of the proposals and faster adoption. 

The proposals are beneficial to all the stakeholders in the EU. Its adoption will mark the crypto advancement unlike before. It is what the crypto consumers and businesses need the most at the moment. 

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