Regulatory frameworks for digital currency in Europe | Yves Mersch | #LDNBlockchain23

Get insights on the regulatory frameworks for digital currency in Europe, including the upcoming ECB decision, financial sector concerns, and the Commission's proposal to balance innovation and stability.

Key takeaways
  • There will be a decision by the ECB’s governing council in October on moving from investigation to a pilot scheme for digital currency in the EU.
  • The financial sector is critical of efforts to create a regulatory framework for digital currency, citing concerns over concentration risk and the potential for systemic risk.
  • The Commission has used article 114 of the European treaties to propose a framework for regulating digital currency.
  • The regulation aims to balance innovation with the need for stability and oversight, with a focus on mitigating systemic risk and protecting investor interests.
  • The Basel Committee on Banking Supervision has set minimum standards for prudential treatment of crypto assets, which will be implemented by January 1, 2025.
  • There are concerns over the concentration of validators and the potential for a single point of failure in decentralized finance (DeFi) platforms.
  • The European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) will have a role in regulating crypto assets, with a focus on protecting investors and maintaining financial stability.
  • The regulatory framework will support innovation by providing a clear and proportionate set of rules, while also allowing for competitive development of digital currency markets.
  • The ECB is concerned about the potential risks of decentralized finance (DeFi) platforms, including the risk of fraud and scam, and the need for better reporting standards and oversight.
  • The regulation will cover all types of crypto assets, including tokens, stablecoins, and central bank digital currencies (CBDCs).
  • There are plans for a pilot regime for CBDCs, with a focus on developing a clear and proportionate regulatory framework.
  • The regulation will also cover the use of distributed ledger technology (DLT) and blockchain in payments, with a focus on improving the efficiency and security of payment systems.
  • The Commission has proposed a directive on digital operational resilience, which will provide a framework for ensuring the resilience of digital services.
  • The regulation will also cover the use of artificial intelligence (AI) and machine learning (ML) in financial services, with a focus on ensuring that these technologies are used in a responsible and transparent manner.