The European markets in crypto-assets regulation (MiCA) is currently in its final phase of adoption by the legislature, and last uncertainties that are being negotiated relate to purely political aspects of the proposal. Hence, as its substance is now settled it is time to take a closer look at this ground-breaking piece of legislation. MiCA will fundamentally change the European crypto markets and at the same time inspire legislation in other part of the world, very much as GDPR did.
The European Digital Finance Programme
Providing the right tools for a changing financial sector
EU digital finance regulation taking centre stage globally
With MiCA, DORA, the AI Act and the DMA/DSA the EU has the most comprehensive FinTech rule book world-wide
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CBDCs are fast becoming a reality … Central banks across the globe are investigating the feasibility of issuing central bank digital currencies (CBDCs) – and some are already nearing the roll-out phase – in face of the threat posed by privately issued so-called stablecoins. However, design choices are complex: • Retail vs wholesale (or both)? • Privacy vs anonymity? • Centralised vs decentralised distribution? • Domestic vs cross-border?
The second Payment Services Directive (PSD2) facilitated significant change in the structure of provision of payment services in the EU, improving competition and consumer choice within this sector – leveraging the sharing of ‘payment accounts data’. Learning the lessons from PSD2 the European Commission is currently reviewing the directive and pursuing its open finance agenda under the September 2020 Digital Finance Strategy. What should practitioners and supervisors expect as a result of the review of PSD2? What are the next steps towards open finance and perhaps even open data?
Artificial intelligence has massive transformative potential. Artificial intelligence applications are being increasingly applied across the EU financial sector whether front or back-office. Applications offer significant benefits for institutions in enhancing efficiencies in traditionally time-consuming processes, such as customer onboarding, credit scoring, suspicious transactions monitoring, and regulatory reporting.
The new Digital Operational Resilience Act (DORA) is intended to substantially strengthen levels of operational resilience across the financial sector, standardising requirements for a wide range of ‘financial entities’ within its scope. DORA will also fundamentally change the scope of the supervisory perimeter in Europe by bringing within the scope of EU-level oversight critical third-party providers (CTPPs) of information and communication technology (ICT) services, including the so-called BigTechs. However, the success of the regime will depend on the industry’s capacity to implement regulatory and supervisory expectations.
Increasingly decentralised infrastructures are posing challenges for financial sector regulators and supervisors. Issues range from whether relevant activities are within the scope of regulation, to who should be the addressee of regulatory obligations, to how the latter can be directed and enforced and whether supervisory tools work at all. For market participants, challenges also arise, relating to questions such as which governing law applies to the system, and what happens in the event of a dispute or mistaken trade?
The structure of the EU financial sector is changing … The provision of financial services is becoming increasingly disintermediated, facilitated by digitisation, data access and even enabling regulatory measures such as the second Payment Services Directive (PSD2). These changes may benefit consumers as well as financial institutions, for instance through enhanced accessibility and network effects via platformisation. However, policymakers at EU and international level are increasingly assessing the implications of structural change in line with their objectives of consumer protection, the integrity and stability of the EU financial system, competition and competitiveness.
The European financial sector is rapidly changing, facilitated by digitisation and a rapidly evolving policy landscape. The developing regulatory framework…