Gerry Cross, Central Bank director of financial regulation, has told attendees at the Blockchain Ireland Week conference that a new EU legislative framework for crypto activities is likely to be agreed by the end of June 2022.
He said the intention of the Markets in Crypto Assets (MiCA) proposal is to address the risks to consumer protection and market integrity from crypto along with specific risks to financial stability and monetary policy while also bringing regulatory clarity to the sector.
The MiCA legislation is currently in final negotiations between the European Commission, Parliament and Council.
Once entered into force, the current draft timeline is 12 months for the framework for issuers Arts and EMTs, and 24 months for the framework for CASPs and utility tokens.
Cross told the conference: “The Central Bank has concerns about the considerable negatives associated with a range of crypto assets, in particular where they are unbacked, widely and intensively marketed and promoted for consumer purchase, and increasing in their linkages to the wider financial system.
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“Consumers face risks from high price volatility, security issues and fraud, and have little or no protection in the face of ‘pump and dump’ strategies and aggressive marketing.
“It is for these reasons that the Central Bank has issued several warnings about crypto highlighting the significant risks they pose to consumers.”
Cross added: “Moreover crypto activity is fast evolving and could reach a point where it represents a threat to financial stability.
“The rapid evolution of and international, cross border nature of crypto markets raises the potential for stability risks, regulatory gaps, fragmentation, and arbitrage.”
Currently, crypto activities are mostly unregulated, except for anti-money laundering purposes under the Virtual Asset Service Provider framework.
It is envisaged that the new EU MiCA rules will impose a mix of conduct and prudential requirements on issuers of Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs).
EMT issuers will have to offer redemption at par (1:1) while both EMT and ART issuers will have clearly disclosed redemption obligations.
The EU Commission envisages that Issuers of EMTs and ARTs will be subject to prudential requirements including capital requirements and reserves obligations including detailed policies and safe custody of same.
For EMT and ART issuers, there will be restrictions for investment of reserves and the expectation of robust governance, including business continuity, control and risk assessment, and appropriate third party contractual agreements. For issuers of ARTs there will be a ban on interest to ART holders.
CASP regulation
MiCA will also impose a mix of conduct and prudential requirements on Crypto Asset Service Providers (CASPs).
These are firms that provide crypto asset services to third parties on a professional basis, such as trading platforms, exchanges, custody providers, execution firms, and advice providers.
Though the issuance of Bitcoin and other unbacked crypto will not be within MiCA’s scope, CASPs that provide the interface between the consumer and the product will be regulated.
CASPs will be required to be authorised in an EU member state in order to operate within the EU. As part of that authorisation they will have to set out the crypto services they want to offer to EU consumers.
Gerry Cross concluded by insisting that the Central Bank is committed to implementing the regulatory, supervisory and approvals approaches to unlock the potential of blockchain and other technological innovation.
The Blockchain Ireland Week 2022 event is taking place at the Alex Hotel in Dublin from May 30 to June 1.
For event activity details, click here.
Photo: Gerry Cross, Central Bank director of financial regulation. (Pic: Jason Clarke)
