Digital Currencies Governance Group (DCGG): February Newsletter

Posted on 01 March 2024

European Union (EU)

DCGG Responds to the EBA’s Third Batch of MiCA Consultations: On February 8, the European Banking Authority (EBA) closed its key third batch of Markets in Crypto-Assets (MiCA) Regulation Level II consultations proposing draft regulatory technical standards and guidelines for stablecoin issuers wishing to be authorised to operate in the European Union. The third batch of consultations enquired into:?

• The methodology estimating the number and value of transactions associated to uses as means of exchange;
• The reporting of asset-referenced tokens (ARTs) and non-EU e-money tokens (EMTs);
• The liquidity requirements of the reserve of assets;
• Highly-liquid financial instruments as part of the reserve of assets;
• Minimum contents of the liquidity management policy;
• Common reference parameters of liquidity stress testing;
• The adjustment of own funds requirements and stress testing of stablecoin issuers;
• The procedure and timeframe of the adjustment of own funds requirements for significant stablecoin issuers;
• Supervisory colleges.

As a digital asset sector trade body, DCGG has been actively engaging in dialogue and collaboration through written comments with key stakeholders during the process of MiCA’s entry into force in the EU, and was eager to offer comments and suggestions on the EBA’s third batch of consultations. We outlined our perspectives on problematic proposals regarding own funds provisions, liquidity and reserve assets requirements, and various interpretations among the proposals, including the definition of “settlement transactions”.?

DCGG expressed concern that some requirements proposed by the EBA are very disproportionate and burdensome to issuers of ARTs and EMTs in comparison to the rules applied to traditional finance sector entities under the remit of the EBA, such as credit institutions and investment firms. Moreover, some requirements outlined for significant vis-a-vis non-significant issuers of ARTs and EMTs appear inconsistent with the provisions under the Level I text. DCGG welcomes the opportunity to continue engaging and collaborating with the EBA on these specific issues to ensure an equal level of fairness and flexibility is allowed for the crypto and traditional finance sectors.

Brussels events on the EU digital finance strategy, the Digital Euro, and legal identification in Web3: DCGG attended a variety of events and conferences in Brussels in February covering a wide range of issues. Ond?ej Kova?ík MEP and the Global Blockchain Business Council (GBBC) explored with industry and other policymakers the EU’s digital finance landscape and its impact on innovative finance worldwide. They touched upon tokenization of securities and financial instruments and how this could lead to cost reduction and improved efficiency, provided that some of the regulatory barriers are addressed.?

The potential tokenisation of a digital Euro and its potential prospect for stimulating growth in Europe was another topic discussed in a debate between the EU Parliament’s rapporteur for the digital Euro Stefan Berger MEP and former Bundesbank board member Joachim Würmeling.?

The EU Commission organised a conference on legal identification in Web3, addressing the various work streams happening on a European and global level to achieve legal identification in Web3, and the potential it has to solve many of the current challenges with regard to verification and identification online.?

EP and Council agree on the host of AMLA: Following a joint vote that took place on February 22, the European Parliament (EP) and Council of the EU reached an agreement on the host of the new Anti-Money Laundering Authority (AMLA). As a reminder, the Regulation establishing the new AML Authority is part of the AML Package issued back in 2021 and certain provisions under AMLA and the other three legislative initiatives will soon apply to CASPs in the EU. In the joint vote on the AMLA seat, Frankfurt received the largest number of votes (28), followed by Madrid, Paris and Rome. The location of AMLA in Frankfurt will be included in the text of the AMLA Regulation, and subsequently the European Commission will be responsible for the establishment of the Authority by July 1, 2025.

DCGG Responds to the EBA’s Draft Travel Rule Guidelines: On February 26, the EBA closed another public inquiry on its proposed draft Guidelines under Article 36 of the Transfer of Funds Regulation (the ‘Travel Rule Guidelines’), which now captures crypto-asset service providers operating in the European Union. The new Guidelines will repeal the 2017 Guidelines applying to payment service providers in order to adequately reflect the realities of the crypto-asset sector.?

DCGG advocates that an appropriate balance is struck between strengthening the EU’s AML/CFT framework, protecting European consumers, and fostering innovation within the ever-evolving EU crypto sector. We strongly oppose the misconception that crypto-assets are primarily used for criminal purposes and believe that the EU crypto-asset industry can play a pivotal role in ensuring that these products and services are not used for ML/TF purposes, as long as the industry does not suffer from a discriminative approach in comparison to the traditional financial system.?

During a public hearing in January 2024 and in our written response, DCGG provided comments and suggestions on the improvement of potentially onerous provisions for detecting missing information and monitoring, as well as reporting of transfers involving self-hosted addresses under the draft guidelines. We look forward to a continuous engagement with the EBA on this crucial topic to enhance the resilience of the EU’s AML/CFT framework in a fair and proportionate manner.

United Kingdom (UK)

DCGG Responds to the FCA’s Discussion Paper on Fiat-Backed Stablecoins: The Financial Conduct Authority’s (FCA) Discussion Paper published in late 2023 marked a pivotal moment in shaping the UK’s regulatory landscape for cryptoassets. February 6 marked the end of the consultation period on the FCA’s Discussion Paper regarding the issuance and custody of fiat-backed stablecoins in the UK. At DCGG, we embrace the opportunity to collaborate with the FCA on the digital asset industry’s entry into the UK regulatory landscape to contribute to a regulatory rulebook that cultivates an innovation-friendly environment, fosters market stability and safeguards consumers. We took the opportunity to comment and make recommendations on key issues under the FCA’s Discussion paper, including provisions on backing assets, redemption requirements and the role of payment arrangers, among others. As the FCA reviews public feedback, further consultations on measures outlined in the Discussion Paper are anticipated for potential adoption under the final rules.