An industry association of Europe’s clearinghouses said it is in favor of a single classification that covers all crypto assets across the bloc as the EU is developing a broader push on how to handle the cryptocurrency industry, and clearinghouses will bear more of the burden.
Dubbed “On an EU framework for markets in crypto-assets,” the new legislation looks to further standardize regulatory approaches across the European Union.
The comments came as the European Association of CCP Clearing Houses (EACH), which represents 15 central counterparty clearing houses in Europe, reveals its take on the EU’s proposed framework to regulate cryptocurrencies. The Belgium-based organization’s members include clearinghouses owned by ICE, the LSE, and Deutsche Boerse AG.
Although welcoming the consolidation to avoid regulatory arbitrage, inconsistencies, and market fragmentation, the EACH said a clear and distinct categorization of digital-assets between security, payment, utility, and hybrid-asset is of critical importance.
The EACH, which represents the interests of big clearinghouses owned by LSE, ICE and CME Group, also highlights the necessity of a gradual regulatory approach in the areas of trading, post-trading and asset management concerning security tokens.
Concerning their clearing activities, where they receive collaterals to prevent the default risks from spreading throughout the system, the association says EACH members understand the potential impact that DLT technologies may have on their business. It added that it is already involved in initiatives to explore the application of blockchain technologies that they believe might bring benefits in certain areas of CCP activities.
In addition, EACH said the crypto wallet providers were already defined under the AMDL5 rules and are now considered a new “obliged entity” and therefore, should be regulated.
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“We believe that the benefits of clearing transactions through a CCP will not become obsolete in the future. Certain functions of the CCP, including multilateral netting as well as the performance of risk, collateral, and default management processes, will indeed remain unique features of central clearing even if the industry moves to a distributed ledger,” it added.
EU legislation that might apply to crypto-assets
With a few hours to go before the closing date of the EU consultation on crypto regulation, the document included specific questions focused on the issuance of crypto-assets, trading platforms, exchanges, custodial wallet services, and other service providers.
While the commission acknowledges the wide variety of crypto-assets, it says there is no commonly accepted way of classifying them nor a broadly accepted definition. It further notes that the lack of comprehensive classification leads to uncertainty as to whether such assets fall within the scope of EU financial services legislation, namely MiFID II laws.
In summarizing trends concerning security tokens, the commission considers that such crypto assets qualify as securities while its related activities fall under MiFID II investment services.
Throughout much of the last two years, European regulators cracked down on crypto exchanges, ICOs, and individuals it felt were operating on the wrong side of normal restrictions.
The European Union was also reportedly considering launching a digital currency that would help it combat the direct threat of cryptocurrencies and also make projects like Facebook’s Libra appear redundant.
European regulators have united in pursuing a tough regulatory approach should Libra seek authorizations to operate in the 19-country bloc. They spoke about serious implications for financial stability if authorities lost control over the phenomenon and called for a common set of rules for crypto assets, but none of them has properly taken off so far.