- Instead of forming new laws to govern digital assets, the SMSG suggests EU commission use the current legislation on investment objects.
- EU should place crypto under the regulation of MiDI II control as they bear the same risks as stock and bonds.
- SMSG to develop a set of questions in classifying the cryptocurrencies.
On 19th October, 2018, the Securities and Markets Stakeholder Group submitted a report to the European Securities and Markets Authority regarding the regulation of digital currencies.
Regulation of Digital Currencies
The report says that there is no need for new legislation; the EU commission should adopt the existing laws and rules in crypto regulation.
The SMSG, in the report, have developed a set of questions to help them classify the different digital currencies. According to the team, classification and regulation of these digital currencies would help avoid unfair business transactions in the system. Current laws on crypto regulation only cover the definitions of the holder of these monies.
Digital assets classification and their preferred classification
They (SMSG) developed the following set of questions to determine how each token would be regulated. That is;
- Is it transferable?
- Is it scarce and how is the scarcity controlled?
- Does it give entitlement to the owner?
- Does it provide decision leverage to owners?
Utility tokens should fall under the legislation of the MiDI control only if they are usable and transferable. However, if they don’t have such characteristics, then it wouldn’t be necessary to regulate them. Contrarily, digital tokens that may become investment objects in the future should fall into regulation by the MiDi. Hence, secondary markets would consider the digital tokens as Organised Trading Facilities subject to the Market Abuse Regulation.
Secondly, the report also mentions payment tokens such as bitcoin which are not under the MiDI that regulates business securities. As many of these crypto assets bear same risks as bonds and shares, the report urges the European Union to put them under Markets in Financial Instruments Directive.
Last, the SMSG discusses asset tokens, which represent the transfer of goods. All these transactions are recorded in the blockchain systems thus strengthening financial security for both seller and buyers.
Only crypto assets that have a transferable feature and provide financial entitlement should be placed under regulations. The lodged report would assist ESMA to lobby for these changes from the European Commission.