The European Union is planning new rules designed to encourage the adoption of digital financial instruments such as stablecoins that could ease cross-border payments, according to two unpublished documents.
The documents, whose contents have been widely reported, are set to be published later in September, the European Commission said.
The documents indicate the block is aiming to have the new regulatory framework in place within four years.
The proposals arrive at a time when the European Commission is looking to boost the use of digital finance, with 78 percent of payments in the euro zone currently made in cash.
The Commission is also looking to shift rapidly to instant payment methods, as the coronavirus pandemic boosts the use of cashless transactions.
According to the documents, the Commission is planning to present a draft law on the application of existing financial regulations to crypto assets, while proposing new regulations that would eliminate any current ambiguities.
“By 2024, the EU should put in place a comprehensive framework enabling the uptake of distributed ledger technology (DLT) and crypto-assets in the financial sector,” the documents said.
“It should also address the risks associated with these technologies.”
The draft rules, called the EU Regulation On Markets in Crypto-Assets (MiCA), seek to provide legal clarity for a field which has in some measure benefited from its ambiguous regulatory status.
They create definitions for various crypto-asset categories, such as e-money, which is used primarily for electronic payments, and asset-referenced tokens, a broader category of asset to which additional regulations would apply.
By bringing crypto-assets into the established financial regulatory framework, the draft rules seek to encourage the use of crypto-assets such as stablecoins, cryptocurrencies that are backed by a basket of other assets.
Stablecoins leapt to the forefront of regulators’ agendas last year with Facebook’s proposed Libra currency.
Libra in April reduced the original scale of its ambitions, ending plans for a fully independent currency in favour of digital versions of existing currencies – a scheme which would be broadly in line with the EU’s proposed definition of e-money.
But the proposed rules also have the potential to stifle innovation in the space, industry watchers say, with additional regulatory obligations to be imposed on those issuing crypto-assets in the EU.
Service providers must, for instance, be incorporated as a legal entity and have their registered office in a member state.
Such obligations could pose a significant challenge to the entities that have to date played a part in the spread of decentralised finance, while benefiting established players such as banks and investment firms.