It will ensure that people and businesses have an additional choice – on top of current private options – that allows them "to pay digitally with a widely accepted, cheap, secure and resilient form of public money in the euro area." 

If the proposal to establish the legal framework for the digital euro is adopted by the European Parliament and Council, it will ultimately be for the European Central Bank to decide if and when to issue the digital euro.

The Commission also set out a legislative proposal on the legal tender of euro cash to "safeguard the role of cash, ensure it is widely accepted as a means of payment and remains easily accessible for people and businesses across the euro area."

The European Commission published the following information:

Legislative proposals and related documents -

• Timeline of the initiative and stakeholder's feedback
• Proposal for a Regulation on the establishment of the digital euro
  • Annexes to the proposal for a Regulation on the establishment of the digital euro
• Proposal for a Regulation on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro
• Impact assessment accompanying the proposals
• Summary of the impact assessment accompanying the proposals
• JRC research update: Potential impact of digital euro on banks' balance sheets and profitability
• Related proposal on a legal tender of euro cash

Press information -

• Press release
• Frequently asked questions
• Factsheet: The euro - Single currency package

It seeks to collect further information on expected impacts on key industries (financial intermediation, payment services, merchants), users (consumer associations, retailers’ associations), chambers of commerce and other stakeholders in international trade.

The targeted consultation will gather further evidence on the following issues:

• users’ needs and expectations for a digital euro;
• the digital euro’s role for the EU’s retail payments and the digital economy;
• making the digital euro available for retail use while continuing to safeguard the legal tender status of euro cash;
• the digital euro’s impact on the financial sector and the financial stability;
• application of anti-money laundering and counter terrorist financing (AML-CFT) rules;
• the privacy and data protection aspects;
• international payments with a digital euro.

The deadline for responses is 14 June 2022.

The pilot regime sets out the conditions for acquiring permission to operate a DLT market infrastructure, defines which DLT financial instruments can be traded and details the cooperation between the operators of DLT market infrastructures, national competent authorities and ESMA.

A provisional agreement between the Council of the EU and the European Parliament was reached on the following key issues:

• definition of the DLT market infrastructure;
• thresholds for admission to trading or recording on a distributed ledger;
• supervision: national competent authorities will remain in charge for the authorisation while the ESMA can issue an opinion on the application. The opinion would be non-public and non-binding but an explanation would be needed in case the national competent authorities decide to significantly deviate from it;
• consumer protection: DLT operators will have mechanisms for handling clients’ complaints and their compensation

This pilot regime will be in place for three years. The European Commission, based on advice from ESMA, will then report to the Council of the EU and the European Parliament on the costs and benefits of extending, modifying or ending it.

Following a comprehensive consultation, the EC published its legislative package for cryptoassets to bring legal certainty to the cryptoasset industry in the EU.

The package includes a proposal for an EU Regulation of Markets in Crypto-Assets (MiCA) as well as a pilot regime for market infrastructures based on distributed ledger technology (DLT) that will allow for experimentation within a controlled environment under a regulator's supervision.

This proposal is part of a wider Digital Finance Strategy as the EU looks to embrace the opportunities of emerging tech.

Key takeaways from the proposal

Scope and definitions

• The regulation applies to entities engaged in the issuance of cryptoassets and services related to cryptoassets in the EU that do not qualify as: a financial instrument, deposits, structured deposits or securitisation.
• The Commission proposes a number of definitions, most significantly:
  • Cryptoasset: a digital representation of value or rights, which may be transferred and stored electronically, using distributed ledger or similar technology.
  • Asset reference tokens: a type of cryptoassets whose main purpose is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of several fiat currencies, one or several commodities or one or several cryptoassets, or a combination of such assets.
  • E-money token: a type of cryptoassets whose main purpose is to be used as a means of exchange and that purports to maintain a stable value by being denominated in (units of) a fiat currency.
  • Utility token: a type of cryptoasset intended to provide access digitally to an application, services or resources available on a distributed ledger and that is accepted only by the issuer of that token to grant access to such application, services or resources available.
• The proposal also has additional definitions for significant e-money tokens and significant asset reference tokens, when at least three of the following criteria are met (note the Commission is empowered to set higher limits via a delegated act):
  • size of the customer base (should not be lower than two million natural or legal persons);
  • value of the asset reference tokens issued (should not be lower than €2 billion);
  • number and value of transactions (should not be lower than 1 million transactions per day or €1 billion per day);
  • size of the reserve of assets (should not be lower than €2 billion);
  • significance of the issuer's cross-border activities, i.e., the number of Member States that use the token (should not be lower than seven); and
  • interconnectedness with the financial system.

Issuance of cryptoassets 

• Issuers of cryptoassets are required to publish a whitepaper with all the relevant information concerning the cryptoasset issuer and the planned cryptoasset offering or admission to trading on a trading platform for cryptoassets.
• The whitepaper must be notified to the national competent authority, which then can: require the inclusion of supplementary information or amendments; suspend or prohibit the offering if it suspects that a provision has been infringed; or make public that the issuer is failing to comply.
• The regulation also requires that issuers are incorporated in the form of a legal entity in the EU.

Issuance of asset reference tokens

•  As is the case with the issuance of cryptoassets, asset reference tokens will also have to publish a whitepaper and be incorporated in the form of a legal entity in the EU.
• In addition, the proposal includes capital requirements of a minimum of €350,000 or 2% of the average amount of the reserve assets (3% for issuers of significant asset reference tokens).
• The competent authority may require the issuer to hold an amount of own funds up to 20% higher if an assessment deems that the tokens are at higher risk.
• The proposal outlines the requirements for an issuer of the asset reference tokens to have a clear and detailed policy and procedure describing the stabilisation mechanism of such cryptoassets.
• The issuer is obliged to appoint a credit institution (in the case of financial or ‘other’ assets) and/or a registered cryptoasset service provider (in the case of cryptoassets) as custodians of the reserve assets.
• Should the reserve wish to invest reserve funds, it can do so only in highly liquid financial instruments with minimal market and credit risk, something that will be defined by the European Banking Authority (EBA) via regulatory technical standards after consulting the European Securities and Markets Authority.
• There are additional requirements for asset reference tokens that are deemed significant and these will be supervised by the EBA.

Issuance of e-money tokens 

• As above, issuers of e-money tokens need to publish a whitepaper with all relevant information. In addition, they are required to be authorised as a credit institution or as an e-money institution.
• Holders of e-money tokens shall have a claim on the issuer for such e-money tokens which should be issued and redeemed at par value to the monetary value of the token.
• Any funds that are received in exchange for e-money tokens that are invested should be done so in a secure, low-risk assets denominated in the same currency as the one referenced by the e-money token.
• Again, issuers of significant e-money tokens will have additional requirements and will also be supervised by the EBA.

Requirements for cryptoasset service providers 

• The regulation details that cryptoasset services should be provided only by legal persons that have a registered office in the EU and that have been authorised as a cryptoasset service provider in accordance with the regulation.
• MiCA also includes a number of other provisions, such as prudential requirements, organisational requirements, the safekeeping of client funds, information that needs to be provided to clients, complaints handling procedure, conflicts of interest rules and outsourcing rules.
• Specific requirements have also been put in place depending on the type of cryptoasset service provider. Most significant are those of custodians, trading platforms and exchanges.
• Custody on behalf of third parties of cryptoassets or access to cryptoassets must:
  • enter into an agreement with their clients defining their duties and responsibilities;
  • keep a register of positions opened in the name of each client;
  • establish a custody policy including internal rules and procedures to ensure the safekeeping or control of cryptoassets;
  • communicate at least once every three months with the client as well as at each request;
  • segregate holding on behalf of their clients from their own holdings;
  • only use cryptoassets or their cryptographic keys with their client's express prior consent; and
  • be liable for the loss of crypto assets as a result of a malfunction or hack.
• Operation of a trading platform for cryptoassets must:
  • have in place operating rules for the trading platform;
  • have in place effective systems, procedures and arrangements to ensure its trading system is resilient, has sufficient capacity, is able to reject orders that are clearly erroneous, is fully tested and is subject to effective business continuity arrangements;
  • make public the price, volume and time of the transactions executed;
  • complete the final settlement of the transaction on the DLT on the same date as the transact has been executed on the trading platform; and
  • ensure that their fee structures are transparent, fair and non-discriminatory.
• Exchanges dealing with the exchange of cryptoassets against fiat currency or cryptoassets against other cryptoassets must:
• establish a non-discriminatory policy which details the types of clients they accept to transact with;
• publish a firm price of the cryptoassets or a method for determining the price they propose;
• execute the clients' orders at the price displayed at the time of their receipt; and
• publish the details of the orders and the transactions concluded.

He said that there is "a good chance for Europe to strengthen its international standing and to become a global standard-setter, with European companies leading new technologies for digital finance".

Cryptoassets and distributed ledger technology will be a first test case.

A lack of legal certainty is often cited as the main barrier to developing a sound cryptoasset market in the EU. However, the Commission intends to change this, believing that a EU common approach is needed here. The Commission therefore plans to present legislation in this area later in the year.

Dombrovskis added that some cryptoassets fall under existing EU rules, but many do not.

"But they present familiar issues of consumer protection, market integrity and equal conditions for competition. This exposes consumers to substantial risks and fragmented national rules in the single market," he said.

For cryptoassets covered by the EU rules, there are several areas where rules should be adjusted to make sure that they remain fit for purpose.

Since distributed ledger technology evolves constantly, the Commission will propose a pilot scheme to give some regulatory flexibility for experimentation – but well framed and under close supervisory oversight.

For those assets that are not covered, the Commission will create a bespoke regime and a passport for markets in cryptoassets. "The aim is to make sure that risks are addressed, and that investors and users have a clear understanding of them."

Dombrovskis said that, overall, the Commission's approach will be proportionate and relate to the level of risk, meaning that lighter rules will apply for less risky projects.

However, with cryptoassets like stablecoins, a distinction should be made between global stablecoins and those created by smaller start-ups and FinTech innovators.

"If they reach a global scale, stablecoins are likely to raise additional challenges in terms of financial stability and monetary policy. In these cases, because of their potentially systemic role, our rules will be stronger," he said.