European Parliament calls for progressive regulation on blockchain technology
Distributed ledger technology is the cornerstone of Bitcoin and many other crypto-assets. The European Parliament has declared that it wants the EU to be a leader in DLT and has proposed several policies for boosting DLT and related technologies in Europe.
Richard Hay, UK Head of UK Fintech, on the potential impact of DLT.
What has the Parliament done?
The European Parliament has agreed a form of resolution on distributed ledger technology which is used to register the Parliament’s position on political questions.
In this case, the Parliament has taken the opportunity to highlight some positive use cases for DLT and to warn of some of the risks. It also sets a long to-do list for the European Commission to try to ensure its proposed policies are put into practice.
What are the Parliament’s key policy requests?
In terms of policy, the Parliament has said that:
- No regulation of DLT: The EU should not regulate DLT per se but remove existing barriers to implementing blockchains
- Innovation-friendly regulation: Any regulatory approach to DLT should be innovation-friendly, allow passporting and be guided by the principles of technology and business-model neutrality
- Technology-savvy supervisors: Regulators and the Commission need to build their technical expertise quickly
- Clamp-down on fraudulent exchanges: The Commission should develop a European framework for tackling fraudulent or criminal DLT exchanges.
What has the Parliament said about DLT in financial services?
The resolution sets out many use cases and advantages for DLT across different sectors ranging from creative industries to public services. Specifically, for the financial sector the Parliament:
- highlights the significance of DLT in financial intermediation e.g. improving transparency and reducing transaction costs
- welcomes that financial institutions have explored the potential of DLT
- asks the Commission and local regulators to monitor trends and use cases for DLT in finance
It is not all positive statements, however. The Parliament also takes the opportunity to set out its concern about volatility of cryptocurrencies. It asks the Commission and the European Central Bank to provide feedback on the sources of this volatility of cryptocurrencies, identify dangers for the public and explore whether cryptocurrencies should be incorporated into the European payments system.
It also stresses the dangers related to initial coin offerings on the one hand but on the other suggests that they could be an essential element to the EU’s Capital Markets Union. The Parliament asks the Commission and national regulators to provide guidelines, standards and disclosure requirements for ICOs.
What happens next?
The resolution has more political than legal significance. The Commission is not required to do anything in response to these requests and it already has a Fintech Action Plan which it is implementing.
The resolution may increase the political pressure on the Commission to produce substantive proposals under that plan and could provide the political justification for any action put forward by the Commission in this area.