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DISTRIBUTED

LEDGER

TECNOLOGY

We need to recognize the general potential of DLT technology, without being ignorant of related challenges and risks introduced by emerging crypto-assets. European banks support the careful attention that EU institutions are paying to the risks of crypto-assets, e.g. in terms of implications for the monetary policy.

Wim MijsEBF Chief Executive Officer

In monitoring the evolution and uses of technology, the ECB respects technological neutrality. We do not serve technology – technology serves us. We will only introduce a digital currency if we become firmly convinced that it is both necessary and proportionate to fulfil our tasks in ensuring the stability of our currency.

Yves MerschFormer Member of the Executive Board of the ECB
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EBF key messages for crypto-assets

EBF response to the Commission consultation on crypto-assets

  • Banks recognizing the general potential of DLT technology, but are aware of related challenges and risks. The EBF supports the careful attention that EU institutions are paying to the risks of crypto-assets, e.g. in terms of implications for the monetary policy.

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  • The EBF likes to strongly emphasis the important principle of “same services, same risks, same rules” for regulatory activities targeting a crypto-assets ecosystem. The principle allows to mitigate risks appropriately, while incorporating new activities in the financial regulatory framework. It grants the flexibility required to make the framework future-prove.

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  • The EBF supports a technological neutral approach to provide clarity to the market regarding crypto-assets’ applicable regulatory requirements.

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  • The EBF calls upon regulators to ensure a necessary balance between innovation and proper protection of investors and consumers.

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  • The EBF highlights the importance of a level playing field regarding regulatory safeguards for crypto-assets, to be fostered by considerations of a pan-European approach rather than detrimental regulatory fragmentation across different countries.

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Key messages have been taken from EBF response to the European Commission proposal: Regulation on Markets in crypto-assets (MiCA), full text available HERE

EBF position & key documents on Distributed Ledger Technology


EBF believes that DLT has the potential to contribute positively to citizens’ welfare and economic development. It has a considerable impact on banking industry infrastructures, roles and functions of financial intermediaries, back-office related securities processes, communication, interoperability and competition.


DLT will also help to:

  • enhance supervision
  • improve transparency over transactions
  • enable new and smart ways to exchange information between entities and supervisors
  • increase flexibility and efficiency for both industry and authorities


EBF position:

  • EBF key recommendations for crypto-assets
  • EBF key messages on European Commission proposal: Regulation on Markets in crypto-assets (MiCA)
  • BCBS consultation on Prudential treatment of cryptoasset exposures: EBF response
  • European Commission proposal: Regulation on a Pilot Regime for Market Infrastructures based on Distributed Ledger Technology


Key documents:

  • ECB Report on a digital euro 
  • EC Regulation on Markets in Crypto-assets
  • EC Regulation on a pilot regime for market infrastructures based on distributed ledger technology
  • EC Fintech Action Plan
  • EBA’s Fintech Roadmap

EBF Key messages on AML Risks Associated with Virtual Assets and Virtual Asset Service Providers

EBF comments on the Revised FATF VASP Guidance

  • Mitigating the risks associated with peer-to-peer (P2P) transactions remains a significant challenge. A measure such as denying licensing of virtual asset service providers (VASPs) if they allow transactions to/from non-obliged entities, would significantly mitigate those risks.

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  • If VASP engagement with unhosted wallets is nevertheless permitted, at a minimum the same criteria and due diligence requirements should be applied as generally captured by Member State regulation for processing occasional transactions in order to maintain a level playing field among obliged entities.

    x

  • VASPs or other obliged entities engaged in VA activity should not implicitly rely on the involvement of financial institutions to reduce ML/FT risks, but accept responsibility for their own compliance programmes in line with the principle “same risk (service), same regulation, same supervision”.

    x

  • Close cooperation and coordination from all relevant market players is essential to achieving a common approach accepted by all relevant parties.

    x

Key messages have been taken from the EBF position on (recast) Regulation of the European Parliament and of the Council on information accompanying transfers of funds and certain crypto-assets, HERE

European institutions

The Commission proposes new legislation on crypto-assets, a digital representation of values or rights that can be stored and traded electronically.

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The ‘Regulation on Markets in Crypto Assets’ (MiCA) aims to boost innovation while preserving financial stability and protecting investors from risks. This shall secure legal clarity and certainty for crypto-asset issuers and providers. The new rules intend to allow operators authorised in one Member State to provide their services across the EU (“passporting”). Safeguards include capital requirements, custody of assets, a mandatory complaint holder procedure available to investors, and rights of the investor against the issuer. Issuers of significant asset-backed crypto-assets (so-called global ‘stablecoins’) would be subject to more stringent requirements (e.g. in terms of capital, investor rights and supervision).
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  • European Commission legislative proposal “Regulation on Markets in Crypto-assets (September 2020)

The Commission is proposing a pilot regime for market infrastructures that wish to try to trade and settle transactions in financial instruments in crypto-asset form. The pilot regime represents a so-called ‘sandbox’ approach – or controlled environment – which 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. The intention is to allow companies to test and learn more about how existing rules fare in practice.

  • European Commission legislative proposal “Regulation on a pilot regime for market infrastructures based on distributed ledger technology (September 2020)

According to the updated Commission work program from 27 May 2020, a legislative proposal on crypto-assets will be issued in Q.3 2020. Previous activities of the Commission addressed aspects of the phenomena already, and invited stakeholders to comment on the regulatory aspects:

  • Joint statement by the Council and the Commission on “ stable coins” (December 2019)
  • Public consultation “On an EU framework for markets in crypto-assets” (December 2019)

The ECB report examines the issuance of a central bank digital currency (CBDC) – the digital euro – from the perspective of the Eurosystem.

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According to the ECB, such a digital euro can be understood as central bank money offered in digital form for use by citizens and businesses for their retail payments. It aims to complement the current offering of cash and wholesale central bank deposits.

  • Eurosystem launches digital euro project (July 2021)
  • Digital euro experimentation scope and key learnings
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  • ECB Report on a digital euro (October 2020)

The ECB communicates their close monitoring of the evolution and uses of technology, respecting technological neutrality. This includes Central Bank Digital Currency developments worldwide. According to members of the Executive Board of the ECB, it will only introduce a digital currency if the ECB become firmly convinced that it is both necessary and proportionate to fulfil its tasks in ensuring the stability of our currency. The ECB wants to “refine its thinking on CBDC – both within the ECB, the Eurosystem and in the international central banking community”. CBDC design choices are considered not merely technical but in light of policy and legal implications.

Several papers have addressed implications, for example:

  • “ Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures” (ECB Occasional paper series Issue 223, May 2019)
  • “Stablecoins – no coins, but are they stable” (IN FOCUS, Issue 3, November 2019)
  • Speech by Yves Mersch, Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB “AN ECB digital currency – a flight of fancy?” (11 May 2020)

The European Banking Authority (EBA) published in January 2019 the results of its assessment of the applicability and suitability of EU law to crypto-assets.

More

  • Crypto-assets: ESAs remind consumers about risks
  • EBA report with advice for the European Commission on crypto-assets

The European Security and Markets Authority (ESMA) published in January 2019 the Advice on Initial Coin Offerings and Crypto-Assets report.

More

  • ESMA 2022 Work Program
  • ESMA responds to European Commission consultation on the Digital Finance Strategy 

The European Blockchain Observatory – EU Commission

The European Commission has launched a EU Blockchain Observatory and Forum with the support of the European Parliament. The EU Blockchain Observatory and Forum will identify relevant existing and emerging blockchain initiatives​, monitor and analyse blockchain developments and trends, as well as the potential opportunities and challenges for Europe as pillar of the Digital Single Market project. By bringing together Europe’s leading stakeholders, practitioners and experts, the Blockchain Forum will facilitate experience sharing and reflections, animate and lead debate engaging with blockchain technologists, innovators, citizens, industry and other organisations and stakeholders.

The Forum will be supported by two Working Groups:

  • Blockchain Policy and Framework Conditions: this Working Group should look particularly into cross-cutting issues in order to establish policy, legal and regulatory conditions needed to promote predictability and legal certainty, both necessary for larger-scale deployment of blockchain applications.
  • Use Cases and Transition Scenarios: this Working Group will focus on the most promising use cases, particularly with a public sector angle.

More information on this project: https://ec.europa.eu/digital-single-market/en/news/european-commission-launches-eu-blockchain-observatory-and-forum

  • Link to members
  • Link to how to contribute
  • EBF actions (under construction)
Blockchain: An issue of international relevance

FSB logo - EBF Cybersecurity page

  • Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements: Progress Report on the implementation of the FSB High-Level Recommendations (October 2021)
  • FSB Chair’s letter to G20 Leaders (October 2021)
  • Regulation, Supervision and Oversight of “Global Stablecoin” Arrangements (October 2020)
  • FSB Consultation 10 high-level recommendations 
  • Letter to G20 Finance Ministers and Central Bank Governors

G7 Public Policy Principles for Retail Central Bank Digital Currencies and G7 Finance Ministers and Central Bank Governors’ Statement on Central Bank Digital Currencies and Digital Payments (October 2021)

G7 Finance Ministers and Central Bank Governors Communiqué (June 2021)

INATBA offers developers and users of DLT a global forum to interact with regulators to foster blockchain technology.

The Organisation for Economic Cooperation and Development has formed an expert group

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to provide advice on its work on blockchain and other distributed ledger technologies. This will include the development of high-level blockchain policy principles. The formation of the group follows the establishment of the OECD’s Blockchain Policy Centre in 2018. The diverse group of participants persists of regulators (including EC, EP, NCAs), industry and academia.

On 24 January 2020, the World Economic Forum announced the creation of a Global Consortium for Digital Currency Governance.

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The initiative targets participants from companies, financial institutions, government representatives, technical experts, academia, international organizations, NGOs and members of the Forum’s communities on a global level. The focus is on developing solutions for a fragmented regulatory system, looking at efficiency, speed, inter-operability, inclusivity and transparency. The Forum calls for innovative regulatory approaches to achieve these goals and build trust.

  • Digital Currency Governance Consortium White Paper Series (November 2021)

The BIS remains attentive to the development of Central Bank Digital Currency (CBDC) in different economic markets.

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In BIS Papers No 107 (“Impending arrival – a sequel to the survey on central bank digital currency”, January 2020) several findings were presented:

  • Central banks are continuing to research CBDCs, a few with motivation to pilot various designs. No evidence yet of a widespread or general move.
  • Diverse motivations for CBDC research, cash use is the key to driving many central banks’ plans.
  • Emerging market central banks aiming to reduce reliance on cash, and advanced economies acting to pre-empt any issues that might be faced by the general public in accessing central bank money.
  • Although motivations are fairly stable, central banks with firmer plans to issue CBDC are now imminently close to doing so. Some 10% of the central banks surveyed are likely to issue a CBDC for the general public in the short term, representing 20% of the world’s population. Cross-border spillover effects are possible. Collaboration through international vehicles such as the BIS Innovation Hub will be necessary to avoid any unforeseen international consequences.
  • Collaboration on understanding the impact of private digital tokens may also need to intensify. Stablecoins could find widespread adoption where cryptocurrencies have failed. The BIS survey shows that more central banks could be looking at the risks outside the financial system while also exploring ways to improve the system with CBDCs.

BIS Report N.1 Central bank digital currencies: foundational principles and core features 

Central bank digital currencies – executive summary

The “ Board Priorities – IOSCO work program for 2020” relates to past and future actions in the field of crypto-assets:

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  • 2019 Risk Outlook: IOSCO Board identified crypto-assets as one of their priority issues for 2019.
  • 1 May 2019: IOSCO consultation report on “Issues, Risks and Regulatory Considerations Relating to Crypto-Asset Trading Platforms”
  • 12 February 2020: IOSCO key considerations for regulating crypto-asset trading platforms
  • Early 2020: regulatory risk review for the benefit of its members examining potential regulatory considerations around investment funds with exposures to crypto-assets.
  • 2020: report on regulatory issues related to Global Stablecoins

What is Distributed Ledger Technology (DLT)?

Distributed Ledger Technology refers to a novel and fast-evolving approach to recording and sharing data across multiple data stores (or ledgers). This technology allows for transactions and data to be recorded, shared, and synchronized across a distributed network of different network participants. This network can be a publicly accessible database or may be restricted to a specified group of users. From a technical perspective, it can be used, for example, to record transactions across different locations.

Blockchain: a particular type of distributed ledger

The technology that makes this possible is often referred to as “blockchain”, which refers to the technology that makes a shared ledger possible to run. Namely, all individual transactions are stored in groups, or blocks, which are attached to each other in chronological order to create a long chain. This long chain is put together using a mathematical formula – complex cryptography – which ensures the security and integrity of the data within a network in an immutable manner. This chain then forms a register of transactions that its users consider to be the official record.

For more information

  • Alexandra Maniati, Senior Director, Innovation & Cybersecurity

    Email, LinkedIn, Twitter

Click here to go back to the EBF Innovation & Cybersecurity home page

European Banking Federation

The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The federation is committed to a thriving European economy that is underpinned by a stable, secure and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.

Contact

Brussels office:
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B-1000 Brussels
+32 2 508 37 11

Frankfurt office:
Weissfrauenstrasse 12-16
D-60311 Frankfurt am Main
+49 69 17509942

Email:
mediacentre@ebf.eu

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