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European Commission Publishes Statement on Regulating Cryptoassets and ICOs

On November 13, the European Commission (EC) published a statement by Vice-President Valdis Dombrovskis on the regulation of cryptoassets and initial coin offerings (ICOs), which he presented at the European Parliament Plenary debate in Strasbourg.

Key takeaways include:

  1. the EC considers that cryptoassets cannot be separated from the underlying blockchain technology as blockchains are chains of cryptoasset transactions. Pursuing the opportunities of blockchain implies that the EC takes an interest in cryptoassets, but also addresses risks they may present;

  2. the EC subscribes to the Financial Stability Board’s (FSB’s) assessment that cryptoassets do not currently pose a financial stability risk, but this may change if the market grows quickly;

  3. the market remains volatile and presents significant risks to investor protection and market integrity. Warnings to investors may therefore be insufficient. “Rules of the road” are necessary to protect investors and increase market integrity, but also to provide legal clarity and certainty for a legitimate cryptoasset ecosystem;

  4. the EC has already expanded the scope of EU anti-money laundering legislation to cryptoasset exchanges and wallet providers through the Fifth Money Laundering Directive.

The key question for financial regulators is whether cryptoassets are financial instruments and, therefore, covered by financial regulation. There also is the question of whether financial regulation is suitable and addresses the risks of cryptoassets, while supporting and enabling the opportunities they bring to the market. Whether the current EU financial regulatory framework applies to cryptoassets will depend on the specific characteristics of each cryptoasset. Where there are cryptoassets that do not meet the definition of a financial instrument under EU or national law, the EC will assess a possible way forward.

The EC and the European Supervisory Authorities (ESAs) are assessing whether cryptoassets and ICOs are covered by existing financial regulation and definitions of financial instrument. The ESAs are expected to present their conclusions by the end of 2018.

The statement is available here.

©2018 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
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John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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