European Central Bank Lays Foundation for Crypto Licensing Requirements

Key Insights:

• The central bank believes that national frameworks governing crypto assets diverge extensively. 
• The ECB will apply criteria from the Capital Requirements Directive when assessing licensing requests. 
• The EU recently agreed on landmark legislation to regulate crypto assets and service providers throughout the bloc’s 27 member nations.

The European Central Bank (ECB), which is tasked with implementing monetary policy and maintaining price stability, has issued a new statement on the necessary steps that need to be taken when harmonising crypto licensing requirements in Europe.

More specifically, the central bank has laid the foundation for the criteria it would consider when regulating digital assets in the wake of pan-EU licensing rules that are set to come into effect by 2023.

Harmonising Licensing Requirements

In a statement that specifically addresses guidance on the licensing of digital assets, the European Central Bank has confirmed that it will consider crypto firms’ business models, as well as their internal governance and assessments.

The ECB is taking such measures given that national frameworks governing crypto assets “diverge quite extensively” following the passage of the Markets in Crypto-Assets (MiCA) legislation and the Basel Committee on Banking Supervision issuing guidelines for banks’ exposure to crypto.

In order to achieve harmonisation, the ECB has said that it will apply criteria from the Capital Requirements Directive, which has been in effect since 2013, in order to assess licensing requests for crypto-related activities and services.

In addition, the European Central Bank will rely on national anti-money laundering (AML) authorities and Financial Intelligence Units to provide the data necessary to assess potential risks.

Comprehensive Regulatory Framework

The ECB’s new statement comes at a time when global regulators are seeking to standardise guidelines for crypto service providers within the European Union.

In fact, representatives from the European Parliament and EU recently agreed on landmark legislation to regulate crypto assets and service providers throughout the bloc’s 27 member nations. MiCA represents the first major regulatory framework for the cryptocurrency industry and it aims to protect consumers by requiring crypto issuers to keep bank-style reserves for stablecoins.

MiCA legislation, which will come into effect by the end of 2023, mandates stablecoin issuers to build up a sufficiently liquid reserve with a 1/1 ratio in order to provide an adequate minimum liquidity.

The law includes a legislative package that sets up requirements for crypto issuers to publish a white paper in order to register with authorities, as well as a cap on stablecoins that can’t exceed 200 million euros of transactions per day. Stablecoins will also be supervised by the European Banking Authority (EBA).

Overall, MiCA, which was originally put forward by the European Commission in September 2020, is expected to harmonise the regulatory approach across the EU, while preserving financial stability and addressing environmental concerns by mandating companies to disclose their energy consumption.