The European Banking Authority has published a report on the application and suitability of the EU bank regulatory framework for crypto-assets. The report is in response to the European Commission's request in its FinTech Action Plan 2018. The report confirms that EU activities related to crypto-assets are fairly low and do not present any financial stability risks. The European Securities and Markets Authority also published a similar report covering Initial Coin Offerings issues within its remit on the same day.
The EBA's report sets out the EBA's findings, the issues arising from the results, the EBA's advice to the Commission and the steps that the EBA intends to take in 2019. The EBA mapped the applicability to crypto-assets and crypto-asset activities of the EU Anti-Money Laundering Directive, the Capital Requirements Directive and Regulation, the second Electronic Money Directive and the second Payment Services Directive. The EBA confirms that:
- a crypto-asset is not within scope of the CRR and CRD and is not within scope of the PSD2, unless it qualifies as electronic money under EMD2;
- a crypto-asset may qualify as electronic money under EMD2 if it satisfies the definition of "electronic money", unless a limited network exemption applies. A firm carrying out activities involving electronic money must obtain authorization as an electronic money institution. A few national regulators reported that they had some cases where, in their opinion, this definition was satisfied. The EBA has included example scenarios in its report; and
- the risks to consumers from services provided by crypto-asset trading platforms and custodian wallet providers remain (the EBA has issued warnings about this since 2013).
The EBA concludes that most activities involving crypto-assets are not within the scope of the relevant EU financial services law. However, such activities may be within the scope of national laws or will become so as a result of steps being taken at individual member state level to adopt, for example, bans on the sale of certain crypto-assets and regulatory requirements for crypto-asset trading and the provision of wallet services. The result is that activities are not subject to consistent regulation across the EU, which, in the EBA's opinion, gives rise to risks of inadequate consumer protection, reduced market integrity and regulatory arbitrage. Where activities are within scope of EU law, the EBA highlights that it should not be assumed that all the associated risks are effectively mitigated.
The EBA advises the Commission to undertake a cost/benefit analysis to assess whether and what EU level action might be appropriate to address the potential risks. With regard to AML/CFT risks, the EBA specifically advises the Commission to take into account the latest recommendations issued by the Financial Action Task Force, including the need for action to be taken regarding crypto-asset service providers not currently within the scope of AML legislation. The EBA notes that the Commission is better placed to carry out such an assessment because a cross-sectoral approach is required and due to the lack of data available to financial services regulators on activities that currently fall outside of their remit. The EBA states that it will continue to monitor crypto-asset activities in the EU by developing a common template through which national regulators can obtain information on the level and type of crypto-asset activity carried out by regulated firms. In addition, the EBA will assess the current practices of financial institutions on crypto-asset advertising and the disclosure of risks to determine if action is needed to ensure high standards of consumer protection. It will also report on the conclusion of the Basel Committee on Banking Supervision's work on the prudential treatment of banks' exposures to crypto-assets and review whether any related guidance is needed on this issue to ensure a common application across the EU.
View the EBA's report.
View details of the FATF's recommendations on virtual currencies.
View details of ESMA's report.