Last week the European Parliament approved the proposal of regulation regarding crypto asset markets, whereby Directive (EU) 2019/1937 is modified with the aim of boosting digital finances by establishing uniform functioning conditions for companies in the EU and offering legal security in relation to crypto assets in the absence of any regulation up until now, this being the first legislation of this type on the world stage.
The entry into force of this regulation is forecast to take place at the end of 2024 or the start of 2025, and will apply to crypto asset issuers and providers who must subject themselves to conditions of transparency and information in relation to the issue, the functioning, the organisation and the governing of crypto asset service providers, as well as the fulfilment of money laundering rules, consumer protection rules and measures aimed at preventing market abuse.
Public offers of crypto assets are regulated, with issuers thereof being obliged to be legal entities and to elaborate and publish a crypto asset white paper, which will be the object of analysis by the authorities, who will hold faculties to paralyse or prohibit the offer, as well as to impose modifications upon the conditions.
Issuers must also be subjected to new requirements regarding conflicts of interest, notifications to the authorities regarding changes to management, governance, equity and reserves systems, also limiting the investment of reserve assets to secure low-risk assets. The granting of interests to holders of tokens is also prohibited.
In order to publicly offer electronic money tokens in the EU, the issuer must be authorised as a credit entity or an “electronic money entity”, and must also must also have a procedure for the orderly winding up of their activities.
The different types of digital assets are classified as follows by this legislation: (i) “ART” tokens, which are stable due to being linked to securities or rights, (ii) “EMT” – electronic money tokens, and finally (iii) crypto assets such as “utility tokens”, which serve in order to access the provision of services or products offered by the issuer itself. On the other hand, this legislation does not regulate “DeFi” (decentralised finance), security tokens or NFT (non-fungible tokens).
Together with this Regulation, the European Parliament has approved the proposed Regulation relative to the information which accompanies transfers of funds and certain crypto assets, which applies the guarantees provided for financial transactions, such as the “travel rule”, which requires financial institutions to transmit information regarding certain transfers.
Greater security for crypto assets is being sought with the approval of these regulations, thus gaining more confidence on the part of consumers, and being able to create an ecosystem wherein subsequently it is possible to introduce digital low-risk and low-volatility digital currency.
Oscar Vilá
Vilá Abogados
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28 April 2023
