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    EBA Report Assesses Applicability of EU Law to Crypto Assets

    January 09, 2019

    EBA published the results of its assessment of the applicability and suitability of EU law to crypto-assets. The report examines the application of current EU banking, payments, e-money, and anti-money laundering laws to crypto-assets and analyzes the crypto-asset custodian wallet providers and crypto-asset trading platforms, building on the July 2014 EBA opinion on virtual currencies. The report also examines the activities of credit institutions, investment firms, payment institutions, and electronic money institutions regarding crypto-assets, along with the associated regulatory and supervisory issues.

    The assessment reveals that relatively low level of crypto-asset activity currently observed in the EU does not appear to give rise to implications for financial stability. However, typically, activities involving crypto-assets fall outside the scope of EU banking, payments, and electronic money regulation, though certain risks exist for consumers, which are not addressed at the EU level. As a result of the development of national regulatory responses, divergences between the member states are starting to emerge, presenting risks to the level playing field. Market developments also point to the need for a further review of EU anti-money laundering legislation.

    Therefore, EBA sets out, in the report, advice to EC about the need for a comprehensive cost/benefit analysis, taking account of issues inside and outside the financial sector, to determine what, if any, action is required at the EU level at this stage. EBA also advises EC to take account of the October 2018 recommendations of the Financial Action Task Force (and any further standards or guidance) regarding, in their terminology, "virtual asset" activities and to take steps, where possible, to promote consistency in the accounting treatment of crypto-assets. Additionally, EBA sets out a number of steps that it will take in 2019 to enhance the monitoring of institutions' crypto-asset activities and consumer-facing disclosure practices. These steps include the following:

    • The development of a common monitoring template, which competent authorities can issue to institutions, payment institutions, and electronic money institutions (and, as appropriate, other financial institutions) to monitor the level and type of crypto-asset activity underway
    • The assessment of business practices of institutions, payment institutions, and electronic money institutions regarding crypto-asset advertising, pre-contractual information about risks related to crypto-asset transactions for consumers (lack of legal framework, liquidity risk, and so on), and the disclosure of the rights and safeguards applicable to consumers in the context of any crypto-asset services provided by those institutions to assess what actions are needed to ensure high standards of consumer protection
    • Report to EC on the conclusion of the BCBS work on the prudential treatment of banks’ holdings of/exposures to crypto-assets
    • Keep under review the need for any guidance to support a common application of the prudential rules under the Capital Requirements Directive and Regulation (CRD/CRR) regarding institutions’ exposures to/holdings of crypto-assets
    • Perform continuous monitoring of innovation and of the regulatory perimeter, including with regard to crypto-asset activities (ongoing)

     

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    Keywords: Europe, EU, Banking, PMI, Securities, Regtech, Fintech, Crypto-assets, AML, EBA

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