The European Commission Digital Finance Package
The European Commission (EC) adopted a digital finance package on 24 September 2020, which includes the digital finance strategy and legislative proposals on crypto-assets and digital resilience. With this package, the European Commission aims to support the competitive development of the EU financial sector, and provide consumers access to innovative financial products, while ensuring consumer protection and market stability.
In this context, three legislative proposals were submitted to the European Parliament and the EU Council - the Regulation on Markets in crypto-assets (MiCA), the Regulation on digital operational resilience for the financial sector (DORA) and the Regulation on a pilot regime for market infrastructures based on distributed registry technology for review and adoption.
Overview of the draft Regulation on the Markets in crypto-assets (MiCA)
According to the draft regulation, MiCA will apply to persons involved in the issuance of crypto-assets, as well as to services related to the provision of crypto-assets in the European Union (EU), which are not regulated by other European legislative acts, but will not apply if the current EU financial legislation on financial instruments and structured deposits (MiFID), electronic money (EMD), bank deposits (D.49 / 2014), securitized products (R.2402 / 2017) is already applicable.
The draft regulation lays down rules on transparency and publication requirements for the issuance and admission to trading of crypto-assets, the authorization and supervision of crypto-asset service providers and issuers, the operation, organization and governance of asset-referenced tokens issuers (ART) and electronic money tokens issuers (EMTs) and crypto-asset service providers, consumer protection rules, and measures to prevent market abuse and ensure the integrity of markets in crypto-assets.
Thus, the specific provisions contained in the draft regulation (MICA) refer to:
- Title I sets out the scope of the regulation and the definitions of key terms;
- Titles II-IV contain the basic part of MiCA, respectively the rules on crypto-asset issuers
- Title III describes the procedure for authorizing token issuers related to assets, as well as provisions regarding the crypto-assets whitepaper (contains relevant information on the supply of crypto-assets);
- Title IV describes the authorization procedure as an electronic money tokens issuer;
- Title V contains provisions on the conditions for authorization and operation of crypto-assets service providers;
- Title VI provides for prohibitions and requirements for the prevention of market abuse in relation to crypto-assets;
- Title VII provides details on the powers of the EBA and ESMA conferred upon national authorities;
- Annex I: contains information on the minimum content of the document "Whitepaper issued by crypto-assets issuers";
- Annex II contains additional information that asset-referenced tokens issuers must provide in crypto-assets whitepapers;
- Annex III contains notes relating to the "Whitepaper issued by electronic money tokens issuers";
- Annex IV contains the Minimum Capital Requirements applicable to crypto-assets service providers (50,000 to 150,000 Euro, depending on the services and activities to be provided);
- Annexes V and VI contain the List of infringements of some provisions of the Regulation in relation to significant asset-referenced tokens issuers, respectively to significant electronic money tokens issuers.
The draft Regulation can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020PC0593
Overview of the draft Regulation on digital operational resilience for the financial sector (DORA)
The DORA draft regulation aims to cover a broad range of entities namely credit institutions, payment institutions, electronic money institutions, investment firms, crypto-asset service providers, central securities depositories, central counterparties, trading venues, trade repositories, managers of alternative investment funds, management companies, data reporting service providers, insurance and reinsurance undertakings, insurance and reinsurance intermediaries, institutions for occupational retirement pensions, credit rating agencies, statutory auditors and audit firms, administrators of critical benchmarks, crowdfunding service providers, central securitization registers and third party information and communication technology (ICT) service providers.
The proposed legislation sets out requirements applicable to financial entities in respect of ICT risk management, contractual arrangements between ICT third-party service providers and financial entities, the oversight framework for critical third-party service providers and rules on cooperation between competent authorities.
According to the draft legislative proposal, financial entities must have in place comprehensive internal governance and control frameworks for ICT risks and also to build and maintain a sound, comprehensive and well-documented ICT risk management framework.
The DORA draft regulation requires financial entities to establish and implement a specific ICT incident management process to detect, manage, classify and notify incidents.
For the purpose of the ITC risk management framework, financial entities shall establish a sound and comprehensive digital operational resilience testing programme, which will include ITC testing tools, systems and methodologies.
The draft regulation includes a separate set of provisions applicable to ITC critical third-party service providers, which will be appointed by a committee of European Supervisory Authorities, based on the criteria set out in the regulation.
The draft Regulation can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020PC0595
Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT)
The draft regulation aims as at developing secondary markets for tokenised financial instruments, promoting the adoption of distributed ledger technology (DLT) in the field of trading and post-trading services, as well as the opportunity to gain experience on the benefits and challenges of DLT by market participants and relevant regulators.
According to the draft regulation, DLT-based market infrastructures may request a derogation from certain specific requirements set out in European legislation (MiFID, CSDR). The adoption of such a pilot regime by market infrastructures is optional, and the competent national authorities are able to grant these derogations, while ESMA ensures convergence at the level of supervision.
The draft regulation also sets out the derogations that may be applied to DLT-based market infrastructures, the requirements imposed on them, the permissions granted to them, as well as the cooperation method between market infrastructures, national competent authorities and ESMA.
The draft Regulation can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020PC0594