As digital currencies take root, the EU plans to set up a body of watchdogs comprising national and European authorities to oversee what they term as “significant development in the crypto scene” as per a recent cryptocurrency draft proposal submitted to the European Commission, reports EURACTIV on Sep 10.
The EU Cryptocurrency Draft Proposal
The new regulation comes after two years, a long but necessary wait, but takes into account the weightiness of what the proposal seeks to achieve.
In a 167-page draft report, the new proposals specifically look to highlight the dangers posed by digital currencies and address their high volatility. The overarching goal will be to protect investors and traders, provide legal certainty, support innovation, and overly provide financial stability and market integrity while steering clear from regulating central bank-backed digital currencies (CBDC) of which some member states are considering.
Interestingly, the EU was forced to act following Facebook’s ambitious plan to roll out a digital currency backed by several fiat currencies like the USD, the Euro, and others. The Libra project was to launch in the first half of 2020 but faced strong winds from the United States Congress, U.S. President Donald Trump, and policymakers in Europe.
At that time, President Trump thrashed Bitcoin saying it was backed by nothing but air, while Bruno Le Maire, the French Finance minister said it will “not accept that Libra is transformed into a sovereign currency that can endanger financial stability.”
Nonetheless, what Mark Zuckerberg and the conglomerate of traditional companies had in mind was a wake-up call for governments around the world.
Stability and Investor Protection
Under these newly defined proposals, cryptocurrencies will be regulated depending on the risks they pose to investors and how destabilizing they can be to the wider economy. The lower the risks posed by a given project, the lighter the applicable rules.
However, those which can be catastrophic, dangerous to financial stability, and risky for investors will have to comply with a different set of laws.
For instance, cryptocurrency projects must publish a whitepaper useful for investors. Meanwhile, stablecoin issuers will fall under the European Banking Authority (EBA) and the commission will add other watchdogs to assist the EBA in oversight.
As such stablecoin issuers must first become a credit institution or an electronic money institution before being permitted to issue coins.
In case of infringement, the EBA could fine the stablecoin issuer up-to five percent of their annual turnover or twice the profits generated or losses avoided.
The EBA and its body of watchdogs also make it mandatory for stablecoin issuers to pay a fee needed to finance the regulatory body operations.
As BTCManager reports, the European Union plans to create a single market for trading cryptocurrencies by the end of 2020.