
<p>Regulators in Europe and around the world face a delicate balancing act when it comes to emerging technologies such as blockchain and digital assets. This is the view of <a href="https://www.ecb.europa.eu/pub/conferences/ecbforum/previous_fora/html/index.en.html" target="_blank" rel="noopener nofollow">Yves Mersch (Member of the Executive Board at the European Central Bank)</a> who gave a keynote address at the recent <a href="https://www.bsvblockchain.org/events/london-blockchain-conference?utm_term=&amp;utm_campaign=enb_int_src_ctg_itl_non_tar_gds+%5Bblockchain+job+posting%5D&amp;utm_source=adwords&amp;utm_medium=ppc&amp;hsa_acc=3491307431&amp;hsa_cam=20507494219&amp;hsa_grp=155425469480&amp;hsa_ad=671840103828&amp;hsa_src=g&amp;hsa_tgt=aud-2102628583914:dsa-390023962546&amp;hsa_kw=&amp;hsa_mt=&amp;hsa_net=adwords&amp;hsa_ver=3&amp;gclid=Cj0KCQjwgNanBhDUARIsAAeIcAsXa7LvWbzeXHBHGNxITtLXtfkGeHUbvGZwKIo-oeHRpg7P4mKKf5saAmFQEALw_wcB" target="_blank" rel="noopener">London Blockchain Conference</a> and discussed the new laws for digital assets in Europe.</p>



<p>When discussing <a href="https://www.bsvblockchain.org/news/it-is-time-to-buckle-up-what-to-expect-from-the-us-blockchain-regulatory-environment" target="_blank" rel="noopener">regulatory changes</a>, there are typically a few fundamental principles that banks and other regulators typically need to address, Mersch said. Firstly, there&#8217;s the concern of regulations being introduced prematurely, or conversely, being implemented too late in response to various instances of scams and fraud, which could ultimately erode people&#8217;s trust.</p>



<p>However, <a href="https://www.bsvblockchain.org/news/insights-from-dr-eva-porras-blockchains-potential-for-intellectual-property-management-and-regulatory-challenges" target="_blank" rel="noopener">if regulations are overly invasive from the outset</a>, they may stifle innovation, but if they are excessively lenient, they could lead to outcomes similar to having no regulation at all.</p>



<p></p>



<figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Regulatory frameworks for digital currency in Europe | Yves Mersch | #LDNBlockchain23" width="500" height="281" src="https://www.youtube.com/embed/zi7lDQ-GZaY?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" referrerpolicy="strict-origin-when-cross-origin" allowfullscreen></iframe>
</div></figure>



<h2 class="wp-block-heading" id="h-changing-with-the-times-to-stay-relevant">Changing with the times to stay relevant</h2>



<p>Mersch noted that digital assets and other emerging technologies have compelled banks and other financial institutions to adapt their business models, which means it is no longer possible for <a href="https://www.bsvblockchain.org/news/bitcoin-and-blockchain-regulation-the-train-has-already-left-the-station" target="_blank" rel="noopener">regulators to simply take a &#8216;wait-and-see approach&#8217;</a>.</p>



<p>Likewise, governments across the globe increasingly have a significant stake in the <a href="https://www.bsvblockchain.org/news/why-bsv-blockchain-is-the-blockchain-for-government-and-enterprise-projects" target="_blank" rel="noopener">advancement of CBDCs</a>, as they seek to safeguard the independence and stability of their currencies, he said.</p>



<p>Mersch advised that regulators must exercise caution in the timing and implementation of regulations, as premature introduction could hinder innovation, while delayed implementation might facilitate misconduct. He emphasised, &#8216;It&#8217;s not technology that mitigates risk; it&#8217;s individuals who manage risk through technology.&#8217;</p>



<h3 class="wp-block-heading" id="h-new-regulations-to-reduce-risk-but-promote-innovation">New regulations to reduce risk but promote innovation</h3>



<p>Mersch’s presentation primarily focused on the EU and the UK and included an explainer on new laws for digital assets and other developments:</p>



<ul>
<li>The Financial Services and Markets Bill;</li>



<li>The <a href="https://www.linkedin.com/pulse/eu-parliament-approves-mica-regulation-crypto-asset-regulations/" target="_blank" rel="noopener nofollow">Markets in Crypto Assets (MiCA) Regulation in the EU</a>;</li>



<li>The development of a Central Bank Digital Currency (CBDC) in the UK.</li>
</ul>



<p>Mersch drew specific attention to the <a href="https://www.esma.europa.eu/esmas-activities/digital-finance-and-innovation/markets-crypto-assets-regulation-mica#:~:text=The%20Markets%20in%20Crypto%2DAssets,by%20existing%20financial%20services%20legislation." target="_blank" rel="noopener nofollow">Markets in Crypto Assets (MiCA) Regulation</a>, which he believes is a good example of laws that help negate risks surrounding the industry without stifling innovation.</p>



<p><a href="https://www.linkedin.com/pulse/eu-parliament-approves-mica-regulation-crypto-asset-regulations/" target="_blank" rel="noopener nofollow">MiCA</a>, as outlined by Mersch, has two primary objectives: <a href="https://www.linkedin.com/pulse/us-government-turns-attention-regulating-digital-assets-%3FtrackingId=KALKypndQIKWobiDTtjIAw%253D%253D/?trackingId=KALKypndQIKWobiDTtjIAw%3D%3D" target="_blank" rel="noopener nofollow">harmonising digital asset regulations across EU member states and fostering innovation</a>. Starting in 2024, MiCA will establish a comprehensive <a href="https://www.linkedin.com/pulse/us-government-turns-attention-regulating-digital-assets-%3FtrackingId=KALKypndQIKWobiDTtjIAw%253D%253D/?trackingId=KALKypndQIKWobiDTtjIAw%3D%3D" target="_blank" rel="noopener nofollow">regulatory framework for digital assets</a>, including issuers and service providers. Digital asset service providers, like exchanges and wallet providers, will need licences from national regulators to serve EU citizens.</p>



<p><a href="https://www.bsvblockchain.org/news/regulations-in-the-blockchain-space-friend-or-foe" target="_blank" rel="noopener">MiCA will also introduce new classifications for various digital assets</a>, specific rules, proof-of-funds requirements for stablecoin issuers, and a requirement for companies issuing digital assets/coins to publish a white paper detailing the project and potential risks.</p>



<p>Mersch noted that <a href="https://www.linkedin.com/pulse/eu-parliament-approves-mica-regulation-crypto-asset-regulations/" target="_blank" rel="noopener nofollow">MiCA builds upon existing EU regulatory frameworks</a> rather than reinventing them. It will incorporate capital requirements, governance standards, authorisation procedures, supervision of issuers and service providers, and reserve requirements for stable currency issuers, such as a one-to-one reserve ratio for permanent redemption rights.</p>


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