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    European Council Adopts Position on Digital Finance Package Proposals

    November 25, 2021

    The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA). The Council also adopted its position on certain parts of the proposal for a directive (Amending Directive hereafter) amending directives 2006/43/EC, 2009/65/EC, 2009/138/EU, 2011/61/EU, EU/2013/36, 2014/65/EU, EU 2015/2366, and EU/2016/2341. In addition, the European Commission welcomed the political agreement reached between the European Parliament and the Council on the proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology.

    According to the European Council, the DORA proposal aims to strengthen the digital operational resilience of financial-sector entities and provides for a stringent and robust regulation of the information and communication technology (ICT) risks. The framework will deepen the digital risk management of financial entities and enhance and streamline their conduct of ICT risk management, establish a thorough testing of ICT systems, increase supervisor awareness of cyber risks and ICT-related incidents faced by financial entities, and introduce powers for European supervisory authorities to oversee risks stemming from the financial entities' dependency on ICT third-party service providers, including cloud computing service providers, software and data analytics services, and data centers. The proposal will also create a consistent incident reporting mechanism in line with measures laid out in the EU Common Cybersecurity Framework, while it aims to ensure proportionality. Additionally, the proposed regulation on markets in crypto-assets seeks to create a regulatory framework for the crypto-assets market that supports innovation and draws on the potential of crypto-assets in a way that preserves financial stability and protects investors. It also aims to policy risks that could arise from a wide use of crypto-assets and distributed ledger technology, or DLT,-based solutions in financial markets.

    While welcoming the agreement on the regulation on a pilot regime for market infrastructures based on distributed ledger technology, the European Commission noted that this regulation is also an important part of its Digital Finance Strategy. The pilot regime will allow regulators and market participants in the European Union to gain experience using distributed ledger technology (that is, the technology used for the trading and settlement of "tokenised" financial instruments), while ensuring that they can deal with risks to investor protection, market integrity, and financial stability. In doing so, the pilot regime will help develop secondary markets for financial instruments in a crypto-asset form and promote the uptake of this technology in the trading and post-trading area. The European Commission also welcomed the political agreement reached on the changes to the Central Securities Depositories Regulation that allow for a deferral of mandatory buy-ins. This will allow further time to determine the best way forward to improve settlement efficiency while avoiding potential negative consequences.

     

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    Keywords: Europe, EU, Banking, Securities, Fintech, Regtech, Operational Risk, MiCA, DORA, Cryptoassets, Cyber Risk, Outsourcing Risk, Cloud Service Providers, Operational Resilience, EC, European Council

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