A long standing interest in applying innovative technologies in the financial sector which included distributing ledger technology (DLT) and asset- tokenization technologies, and the European Banking Authority ( EBA ) was one of the first regulatory authorities ever to comment publicly on the phenomena. Let’s explore more about the EBA’s approach has evolved in taking actions to account for technological neutrality and applying its principles has bought about the changes in the use of the technologies.
The EBA’s aims are as follows-
- to not inadvertently prefer or prevent the adoption of a specific technology;
- to neither prefer nor prejudice a specific business model or service provider, and
- to maintain inter-temporal neutrality, which means, in practice, continuous monitoring of developments and, if needed, to adjust regulatory and supervisory approaches to ensure they are “tech-ready” to enable opportunities to be realized.
These at all times , EBA works to make sure that the regulatory objectives like consumer protection, prudential robustness and financial stability will continue to be completely met. This commitment of technological neutrality can be seen in the work done by the EBA and its evolving approach to the crypto assets. When ecash was conceived by David Chaum, the development of the decentralized bitcoin began in 2008 which caught the public’s imagination which led to increase in consumer interest. And the lineage of the crypto assets dates back to that time. As illustrated by the price of bitcoin, which went from 10,000 bitcoins for two pizzas in its first commercial use in 2010 (around $30 at the time) to first passing the $1,000 mark, albeit briefly, in November 2013.
This led the EBA to issue a public warning on December 13, 2013,[iii] to emphasize to consumers the risks of what we described at that time as virtual currencies, pointing out their value volatility and absence of consumer-protection measures due to their unregulated status. The emphasis on the manifold risks, concluded that EBA’s warning to consumers remained valid; financial institutions should be discouraged from buying, selling or holding virtual currencies; and recommending the appropriate extension of the AML/CFT (anti-money laundering/combating the financing of terrorism) regime to mitigate risks of financial crime.
The use of DLT and crypto-assets within the European Union (EU) financial sector was fast evolving. Financial institutions and technology companies, recognizing the potential for the streamlining of transaction processes and other efficiency gains, were starting to experiment meaningfully by 2018. Rapid evolutions in the application of DLT and crypto-assets in the EU financial sector led the EBA to publish a report in January 2019 with advice for the European Commission on the subject. The report identified the changes in the application of the technologies as meriting further consideration in light of the increasing use within the financial sector. EBA recommended that the European Commission carry out a detailed analysis of the costs and benefits of adapting the regulatory regime both to address emerging risks. It also highlighted that if DLT and crypto assets were becoming a part of the fabric with which the financial sector was woven and it deserved consideration for the challenges posed by a range of differing national approaches and the converse benefits of scalability across the EU single market and to the need for consistency in regulatory approaches to provide certainty about rights and obligations and address risks effectively. Therefore proving a cautious but adaptive approach is possible and can keep pace with the increasing importance of the underlying technology and varying forms of tokenisation to financial services.
Borsa Italiana, CME Group, Deutsche Börse, London Stock Exchange, NASDAQ, SIX Digital Exchange), payment and settlement infrastructures (such as Fnality International) and banks (for example, BBVA-Banco Bilbao Vizcaya Argentaria, BNP Paribas, Commerzbank AG, ING Group and JPMorgan Chase) all these banks also started continuing to experiment in technological neutrality. And the Dialogue between industry, supervisors and regulators will help ensure that the regulatory framework remains fit for purpose, technology neutral and future-proof.