Blockchain and Cryptocurrency Regulation in Europe: Risks to Innovation

Following the publication of the Commission’s regulatory proposals aimed at regulating crypto-asset markets (MiCA) and security tokens (pilot scheme), ADAN welcomes the positive aspects of the text while also warning of the risks posed by certain provisions.

• On September 24, the European Commission published proposals aimed at regulating the market for crypto-assets operating on blockchain networks.
• Adan welcomes the Commission’s pragmatic and tailored approach, which proposes an ad hoc framework for cryptocurrencies and a pilot program for tokenized securities.
• However, the current proposal jeopardizes innovation in the sector: it is too restrictive, and its overly broad and burdensome framework prevents the emergence of new use cases.
• Through ADAN, the French digital asset industry is positioning itself to help refine the regulatory framework, thereby making it better suited to and more compatible with the sector’s rapid growth. 

As part of the European Union’s “Digital Finance” strategy, the Commission’s regulatory proposals aimed at regulating crypto-asset markets (MiCA) and establishing a pilot regime for financial instruments issued and traded on blockchain networks (security tokens) were published on Thursday, September 24.

TheAdan welcomes the innovative approach adopted by the European Commission, which has recognized and taken into account the specific characteristics of crypto-assets and their markets. Regulationis essential to ensure legal certainty, investor protection, the proper functioning of markets, and financial stability. These are also the expectations of the industry. The ad-hoc approach, successfully tested in France since 2018, enables these objectives to be achieved through tailored rules. Furthermore, we can only welcome the passport regime, which will allow crypto-asset service providers (CASP) to expand rapidly throughout the European Union. ADAN also welcomes the creation of a transitional regime for security token markets, allowing for adjustments to financial regulations to facilitate the growth of these markets.

The proposals represent an encouraging step toward strengthening and legitimizing the French and European crypto-asset sector. However, there is significant room for improvement. 

In fact, the proposals do not fully meet their second stated objective of “supporting innovation,” as they impose overly burdensome restrictions and obligations on market participants. For example, applying financial regulatory provisions to all stablecoins without distinction, restricting their issuance to financial firms, banning interest-bearing instruments, and the idea of making emerging players bear the financial cost of supervision are likely to hinder any meaningful innovation in Europe. At the same time, regulated entities based in the United States and Asia are opening up markets for radically innovative crypto-assets. The contrast is striking. Since the crypto-asset market is global and the scene of an ongoing struggle for dominance,the regulatory framework must be based on a principle of proportionality that allows European companies to remain competitive. 

The MiCA proposal is only a first draft. The EU legislative process will shape the final framework.

The Adan is firmly committed to striking the right balance to ensure the protection of investors and consumers, while promoting and preserving the open innovation that enables value creation and the deployment of unprecedented levels of funding for innovation. Promising projects are emerging in Europe, new players are driving the digital finance revolution, and our role is to ensure that they can become the “leading innovative European companies” that the Commission aims to create. With these missions in mind, we are ready to contribute to the Commission’s proposal and work together to help the crypto-asset industry drive the future of a great Europe in digital finance.

Simon Polrot, president of ADAN, states: “I am pleased to see a tailored framework that takes into account the specific characteristics of crypto-assets, but I am also deeply concerned about preserving innovation in the EU. In its current form, I see a proposal that attempts to cover every possible scenario, without taking into account the open nature of the decentralized networks on which crypto-assets are built. It is this fundamental characteristic that creates innovative use cases and applications for these assets. It is not easy to design a new regulatory environment that also serves as fertile ground for innovation, allowing crypto companies to thrive in Europe. We will work toward this goal.”

Let’s help the EU embrace the digital financial revolution!

ADAN (Association for the Development of Digital Assets) brings together professionals in the fields of digital assets and blockchain technology in France and Europe. Its members represent a wide range of activities, including trading, custody, payments, management, analytical tools, project and user support, and IT security. ADAN aims to unite the digital asset industry and promote its development in support of a new digital economy. To this end, the Association possesses technical and regulatory expertise in the digital asset sector and maintains close dialogue with public authorities and industry associations.