CI has recently covered two European reports on the emerging crypto-asset or digital asset marketplace. Both the European Securities Markets Authority (ESMA) and the European Banking Authority (EBA) have had their say on what the European Commission should do.
A few days later, the European Banking Federation (EBF) did the same. They were so kind to send us a note to bring their report on crypto-assets to our attention.
The EBF is a federation of federation of sorts. This group represents all of the banking associations in Europe and thus the big banks.
The report by the EBF overlaps much of the commentary by the two aforementioned European authorities. But the EBF does mention the potential for over-regulation which is of note.
Commenting specifically on initial coin offerings (ICOs), both security and utility vehicles, the EBF has this to say:
“ICOs may offer a new mean of funding that surpasses crowdfunding in terms of speed, reach and presence of a secondary market, and has at the same time entry barriers lower than those of the traditional IPO or venture capital. As a result, this may constitute an important source of funding for smaller companies, especially if the risks to consumers/investors are transparent and due consumer protection frameworks are put in place.”
The EBF believes the concept of ICOs will “gain further ground.” ICOs have the “potential to address problems experienced in accessing funding similar to that of crowdfunding for early-stage companies.”
While recognizing this potential, the EBF notes the risks as well. Most specifically, the rampant fraud that has exemplified the emerging ICO marketplace. Risk aside, the EBF is of the opinion that Europe struggles in raising risk capital, in contrast to the US, and this technology may be a vehicle to enable access to capital formation.
The EBF is clearly more interested in the potential benefits affiliated with blockchain based assets – more so than the two European authorities.
The EBF provides the following “Key Recommendations:”
- Ensure an adequate level of consumer protection and transparency by warning investors of the risks involved with transacting and investing in crypto-assets.
- In order to avoid overregulation and ensure that the marketing of these assets offers the same guarantees as any other financial assets currently available and supervised by regulators, assess further the current regulatory framework:
- a) to promote the use of the current regulation if it is already sufficient to address risks related to crypto-assets (e.g. regulating security tokens under the existing regulation on financial assets).
- b) to identify if regulation is either absent or require adjustments.
- c) take actions to cover unregulated “grey zone”.
- Address the specific AML risks associated with the various stages in a crypto-asset lifecycle by establishing clear regulatory requirements and supervision criteria.
- Encourage continued research on the possible and innovative uses of DLT technology and new way to use DLT for achieving new operational improvements and identifying cost-saving opportunities.
This is an interesting report providing perspective from a constituency that is traditionally very conservative. Europe has historically struggled with providing early-stage funding for innovative young firms.. Crowdfunding has been touted as a potential path to alleviate this nagging problem but the benefits of distributed ledger technology combined with digital assets hold promise, according to the EBF.
See the report below.