On 19 December 2019, the European Commission (Commission) published an inception impact assessment entitled ‘Directive/regulation establishing a European framework for markets in cryptoassets’.

The impact assessment has been published alongside a public consultation requesting feedback on the current regulatory framework for cryptoassets as part of the Commission’s work to promote a new Digital Finance Strategy for the EU. The Commission states that the overarching problem in this area is the lack of legal certainty that currently exists around the treatment of cryptoassets in EU financial regulation. The overall objective of the proposal is to provide clarity surrounding the applicability of EU financial services legislation to cryptoassets and to ensure that the regulatory framework adequately addresses the risks posed by these assets and related services. The Commission’s aim is to find a proportionate approach to address these objectives without creating undue administrative burden whilst facilitating competition and supporting innovation.

In particular, the impact assessment will aim to, for cryptoassets already covered by EU legislation (mostly those which qualify as financial instruments under MIFID II), analyse several policy options, ranging from soft-law measures (e.g. a Commission’s interpretative communications or guidelines, or Q&As from the European Supervisory Authorities) to targeted amendments to sectoral legislation (such as MiFID II, the Prospectus Regulation and the Central Security Depositary Regulation) in order to make sure that tokenised financial instruments can be issued and risks stemming from the use of distributed ledger technology can be addressed.

The above suggestions will be considered in tandem with a mandatory EU framework for cryptoassets that are not currently covered by EU legislation. This framework would cover crypto-related aspects such as the issuance of cryptoassets and set requirements for the provision of certain cryptoasset services, such as trading platforms, exchanges, and wallet providers. Most importantly, this legislation would address the proliferation of divergent national approaches, which pose risks to a level playing field in the Single Market.

The deadline for comments to the impact assessment is 16 January 2020 and the deadline for comments to the consultation is 12 March 2020. The Commission intends to adopt a proposal for a directive/regulation establishing a European framework for markets in cryptoassets by Q3 2020.