The European Banking Authority (EBA) published today the results of its assessment of the applicability and suitability of EU law to crypto-assets. Typically, crypto-asset activities do not constitute regulated services within the scope of EU banking, payments and electronic money law, and risks exist for consumers that are not addressed at the EU level. Crypto-asset activities may also give rise to other risks, including money laundering. In light of these issues, the EBA recommends that the European Commission carry out further analysis to determine the appropriate EU-level response. The EBA also identifies a number of actions that it will take in 2019 to enhance the monitoring of financial institutions’ crypto-asset activities and consumer-facing disclosure practices.
Crypto-assets are a type of private financial asset that depend primarily on cryptography and distributed ledger technology as part of their perceived or inherent value. A wide range of crypto-assets exist, including payment/exchange tokens (for example, so-called virtual currencies (VCs)), investment tokens and tokens to access a good or service (so-called ‘utility’ tokens). Recognising the rapid evolution in the use of crypto-assets, the EBA examines in the report:
- the application of current EU banking, payments, e-money and anti-money laundering laws to crypto-assets;
- crypto-asset custodian wallet providers and crypto-asset trading platforms, building on the EBA’s July 2014 Opinion on VCs;
- credit institutions, investment firms, payment institutions and electronic money institutions’ activities involving crypto-assets and regulatory and supervisory issues.
The relatively low level of crypto-asset activity currently observed in the EU does not appear to give rise to implications for financial stability. However, typically activities involving crypto-assets fall outside the scope of EU banking, payments and electronic money regulation and risks exist for consumers that are not addressed at the EU level. As a result of the development of national regulatory responses, divergences between the Member States are starting to emerge presenting risks to the level playing field. Market developments also point to the need for a further review of EU anti-money laundering legislation.
For these reasons, the EBA sets out in the report advice to the European Commission regarding the need for a comprehensive cost/benefit analysis, taking account of issues inside and outside the financial sector, to determine what, if any, action is required at the EU level at this stage. The EBA also advises the European Commission to take account of the October 2018 recommendations of the Financial Action Task Force (and any further standards or guidance) regarding, in their terminology, ‘virtual asset’ activities, and to take steps where possible to promote consistency in the accounting treatment of crypto-assets.
Additionally, the EBA sets out a number of steps that it will take in 2019 to enhance the monitoring of institutions’ crypto-asset activities and consumer-facing disclosure practices.