The European Parliament’s Committee on Economic in addition to Monetary Affairs (ECON) issued amotion for a European Parliament resolution on virtual currencies that covers numerous regulatory proposals.
The motion summarizes the risks in addition to opportunities of distributed ledger engineering scientific discipline (DLT) in addition to virtual currencies. It notes that both convey the potential to exercise goodness consumer welfare in addition to economical evolution yesteryear lowering transaction costs for transfer of funds in addition to payments below 1%, compared to 2% to 4% for traditional online payment systems in addition to to a greater extent than than 7% for cross-border remittance transfers.
Consistent With G20 And G8 Goals
The motion notes that reducing the toll of access to finance without a traditional banking concern concern human relationship tin move reduced, thereby contributing to fiscal inclusion, which is consistent amongst G20 in addition to G8 objectives. The engineering scientific discipline tin also heighten the resilience in addition to speed of payment systems due to DLT’s decentralized structure, which could proceed to reliably operate fifty-fifty if sections of the network were to endure a hack or a malfunction.
The engineering scientific discipline could enable systems that combine depression transaction costs, ease of exercise in addition to a high degree of privacy without total anonymity thence that transactions tin move traced dorsum inwards cases of malfeasance. Such systems could prepare online micropayments that could supersede the existing “data-hungry” online models that challenge private privacy.
The systems could also permit dissimilar types of innovative payment mechanisms, from credit cards to mobile solutions, to combine into ane user-friendly in addition to secure application.
Risks Noted
DLTs in addition to virtual currency schemes involve risks that must move addressed, including taxation fraud, terrorist financing in addition to money laundering based on “mixing services” in addition to “pseudonymity” that roughly services provide, keeping inwards heed that the traceability of cash is even thence much lower.
Another gamble is the absence of reliable governance structures, notably inwards roughly DLT applications similar bitcoin that provide doubt in addition to consumer perception issues, specially inwards cases of challenges unforeseen yesteryear the master copy software designers. There is sometimes express capacity of regulators regarding novel engineering scientific discipline that could teach inwards difficult to define the correct safeguards promptly to ensure the proper performance of DLT applications earlier they expand to the degree of becoming systematically relevant.
The legal doubt surrounding novel DLT applications is also a concern.
Public And Private Sectors Impacted
Beyond payments, the motion notes that DLT has potential to decentralize, automate, accelerate in addition to standardize data-driven processes that tin alter the means assets are transferred, in addition to records kept. This has implications for both the populace in addition to private sectors.
The populace sector is concerned inwards 3 areas: every bit a service provider, every bit a legislator, in addition to every bit a supervisor. ECON pointed out that settlement, clearing, in addition to other post-trade management processes straight off toll the global fiscal manufacture to a greater extent than than EUR 50 billion annually. This is an surface area where DLT could show to move transformational inwards speed, resilience in addition to efficiency, but would also lift regulatory challenges.
The potential of DLT extends good yesteryear the fiscal sector in addition to includes the potential for smart contracts.
Motion Seeks Government Action
ECON encouraged the authorities agencies to essay DLT systems to amend providing services to citizens spell cautioning on the outsourcing of populace services to private DLT schemes. It recommended that authorities agencies examine the exercise of real-time DLT-based reporting in addition to supervision tools every bit share of the RegTech agenda inwards the fiscal sector in addition to elsewhere, including reducing the sizeable value added taxation (VAT) gap inwards the EU.
The motion calls for a regulatory approach that does non stifle invention inwards an early on phase spell recognizing the regulatory challenges that the broad exercise of virtual currencies in addition to DLTs could pose. Key European Union legislation volition probable apply virtually activities carried out, irrespective of the technology.
ECON welcomed the Commission’s suggestions for including virtual currency substitution platforms inwards the AMLD in addition to recommended farther extending its orbit to custodian wallet providers when the exercise of the currency becomes prevalent in addition to that users would no longer demand to substitution virtual currency for legal tender.
Review Of Payment Legislation Sought
ECON recommended a review of European Union legislation on payments, including EMD in addition to PSD, on concern human relationship of novel possibilities offered yesteryear novel technological developments amongst a destination of enhancing contest in addition to lowering transaction costs. This could include enhanced interoperability via the evolution of a universal in addition to non-proprietary electronic wallet.
The motion calls for the creation of a horizontal chore forcefulness on DLT nether the Commission’s leadership to give the necessary regulatory in addition to technical expertise to back upwardly the relevant actors (at both the European Union in addition to fellow member nation level) inwards efforts to ensure a well-informed reply to the novel challenges in addition to opportunities.
It asks the Commission to examine a legislative proposal requiring DLT in addition to virtual currency scheme actors that don’t yet convey to comply amongst standards to demonstrate the following:
• If used on a large scale, is the scheme designed to forestall harming users in addition to consumers?
• Is it safe, systemic, in addition to convey a dependable governance structure?
The motion instructs the president to ship this resolution to the Council in addition to the Commission.
Investment inwards distributed ledger engineering scientific discipline (DLT) is soaring, ECON noted. DLT enables a fast, decentralized, secure means to tape whatsoever transaction along amongst the history of previous transactions inwards a distributed ledger.
Lower Transaction Costs Noted
While questions rest over the orbit of DLT, The European Parliament recognizes both the opportunities in addition to risks it involves.
The key opportunities inwards the payments plain relate to the reductions inwards transaction costs in addition to the ease of exercise spell enabling varying levels of privacy. The transaction costs for payments on average concern human relationship for to a greater extent than than 7% of cross-border remittances. Both the G20 in addition to the G8 convey committed to reducing these transfer costs. More competitive costs tin also move delivered to the unmarried market.
In the medium term, the introduction of an interoperable in addition to non-proprietary unmarried wallet tin strengthen competition.
Much of DLT’s potential volition probable expand beyond the payment sector. The motion notes post-trade management every bit a DLT manifest exercise illustration inwards the private sector. Applications are probable to emerge where reliability, ownership, proof of identity in addition to standardization are critical. These include provide chain management, holding transfers, authorities services, intellectual holding transfers in addition to smart contracts.
VAT Gap Reduction Possible
The potential to trim down the VAT gap of 168 billion euros using DLT should move explored, for example, every bit share of the RegTech agenda.
Risks related to DLT in addition to virtual currencies volition decease clearer every bit their exercise expands. Some large risks convey already emerged, such every bit the abuse of applications for criminal behavior, including terrorist financing in addition to money laundering.
Because DLT volition probable move used inwards several systemic areas, the resilience in addition to proper performance of these systems must move assured based on supervisory structures in addition to audio governance. In addition, consumer protection issues volition probable emerge inwards roughly applications.
Smart Regulation Needed for Virtual Currencies
One appear of smart rule inwards an environs of dynamic invention is for the regulator to exercise sufficient capacity, including technical expertise. Heavy-handed in addition to pre-emptive rule that could stifle increase tin in addition to should move avoided.
A smart regulatory regime based on proportionality in addition to analytical excellence should non move confused amongst “light touch” regulation. If in addition to when appropriate, fast in addition to forceful regulatory measures should move share of the toolkit inwards social club to address risks earlier they teach systemic.
