COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on a pilot regime for market infrastructures based on distributed ledger technology
Date: 2020-09-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: blockchain, consumer protection, digital single market, electronic money, financial instrument, financial legislation, financial services, information technology applications, investment protection, virtual currency

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.9.2020  SWD(2020) 202 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on a pilot regime for market infrastructures based on distributed ledger technology   {COM(2020) 594 final} - {SEC(2020) 308 final} - {SWD(2020) 201 final}  
 
 
Executive Summary Sheet 

Impact assessment on an EU framework on crypto-assets 

A. Need for action 

Why? What is the problem being addressed? 
Crypto-assets are a type of digital asset that depend primarily on cryptography and distributed ledger technology 
(DLT)1.  Some  crypto-assets  can  qualify  as  financial  instruments  under  the  Market  in  Financial  Instruments 
Directive – MiFID II or as ‘e-money’ under the  Electronic Money Directive – EMD2), while the majority of them 
fall outside the scope of existing EU financial regulation.  

Where crypto-assets are not covered by EU financial regulation, the absence of applicable rules to services 
related to such assets (such as exchanges, trading platforms, custodial wallet providers) leaves consumers and 
investors  exposed  to  substantial  risks.  There  are  also  substantial  market  integrity  risks  (e.g.  market 
manipulation) in the secondary market of crypto-assets. Some Member States have put in place bespoke rules 
at  national  level  for  all  –  or  a  subset  of  –  crypto-assets  that  fall  outside  current  EU  regulation.  This  leads  to 
regulatory fragmentation, which distorts competition in the Single Market, makes it more difficult for crypto-asset 
service providers to scale up their activities cross-border and gives rise to regulatory arbitrage. While the crypto-
asset  market  remains  modest  in  size  and  does  not  currently  pose  a  threat  to  financial  stability,  daily  trading 
volumes have been steadily increasing. So-called ‘stablecoins’ (a subset of crypto-assets that have features to 
stabilise  their  price)  can  raise  additional  challenges  if  they  are  widely  adopted  by  consumers  (e.g.  financial 
stability  and  monetary  sovereignty).  To  avoid  regulatory  arbitrage  and  ensure  adequate  protection  for 
consumers,  the  regulatory  treatment  of  these  ‘stablecoins’  should  depend  on  their  specific  design.  In  the 
absence  of  an  EU  framework  for  crypto-assets,  the  lack  of  users’  confidence  in  crypto-assets  will  hinder  the 
development  of  this  market,  leading  to  missed  opportunities  in  terms  of  fast,  cheap  and  efficient  payment 
instruments or new funding sources for EU companies.   

Where crypto-assets are  covered by EU financial  services legislation, there is a lack of legal certainty on 
how to apply existing EU financial regulation (e.g. the Prospectus Regulation, MIFID II and the Central Security 
Depositary Regulation). This situation leads to only sporadic security token issuances in the primary market, and 
limits  the  potential  use  of  DLT  in  financial  markets,  as  demonstrated  by  a  lack  of  DLT-based  market 
infrastructures (such as trading venues or central security  depositaries) enabling the trading of security tokens 
and the settlement of transactions.  

What is this initiative expected to achieve?  
The overall objective of the initiative is to provide clarity as regards the applicability of the EU financial regulation 
to crypto-assets (and related activities). The initiative should support innovation and fair competition by creating 
a framework for the issuance, and provision of services related to crypto-assets. It should ensure a high level of 
consumer  and  investor  protection  and  market  integrity  in  the  crypto-asset  markets.  It  should  address  financial 
stability and monetary policy risks that could arise from a wide use of crypto-assets and DLT-based solutions in 
financial markets.   

What is the value added of action at the EU level?   
For crypto-assets not covered by EU financial regulation, action at EU level would lay the foundation on which a 
larger cross-border market for crypto-asset issuers and service providers could develop, thereby reaping the full 
benefits  of  the  Single  Market.  It  would  significantly  reduce  the  complexity  and  the  financial  and  administrative 
burdens for all stakeholders. Harmonising operational requirements on crypto-asset service providers as well as 
the  disclosure  requirements  on  issuers  could  also  bring  clear  benefits  in  terms  of  investor  protection,  market 
integrity and financial stability. 

For  crypto-assets  covered  by  existing  EU  financial  regulation,  action  at  EU  level  would  enhance  legal  clarity, 
thus enabling activities related to such assets to expand across the Single Market. This would address the risks 

1  DLT  is  a  means  of  saving  information  through  distributed  ledger,  i.e.  a  repeated  digital  copy  of  data  available  at  multiple 
locations. DLT is built upon a cryptographic system: public keys, which are publicly known and essential for identification and 
private keys, which are kept secret and are used for authentication and encryption.   

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created  by  the  proliferation  of  guidance  and  interpretations  at  national  level  that  lead  to  fragmentation  of  the 
internal market and distortion of competition.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not? Why?  
For crypto-assets not covered by EU financial regulation, two options have been assessed: an EU opt-in regime 
and  a  fully  harmonised  regime  for  crypto-asset  issuers  and  service  providers  that  would  benefit  from  an  EU 
passport to expand their activities cross-border. While the first option could be less burdensome for small issuers 
and  service  providers  that  can  decide  not  to  opt-in,  the  second  option  would  ensure  a  higher  level  of  legal 
certainty,  investor  protection,  market  integrity  and  financial  stability  and  would  reduce  market  fragmentation 
across the Single Market. Therefore, the second option is the preferred option.  

For  crypto-assets  that  qualify  as  MiFID  II  financial  instruments  (i.e.  security  tokens),  three  options  have  been 
considered: 1) non-legislative measures; providing guidance on whether and how existing legislation applies to 
crypto-assets;  2)  targeted  legislative  changes  removing  provisions  acting  as  a  barrier  to  the  issuance,  trading 
and post-trading of security tokens and the use of DLT-based solutions; and 3) a pilot regime (for a three-year 
period)  creating  a  new  DLT market  infrastructure  allowing  for  the  trading  and/or  settlement  of  security  tokens. 
While  soft-law  measures  would  assist  in  clarifying  the  application  of  EU  law  to  security  tokens  and  related 
activities, they cannot remove legal obstacles embedded in existing legislation. Targeted legislative adjustments 
provide  legal  certainty  and  remove  legal  hurdles  but  would  be  applied  only  in  limited  areas  that  have  been 
identified  in  recent  assessments.  While  the  third  option  can  provide  a  clear  experimental  framework  for  the 
trading  and/or  settlement  of  security  tokens,  its  benefits  could  disappear  if  the  experimental  regime  is  not 
extended after the three-year period. As these options complement each other, the preferred approach would be 
to proceed cautiously by way of a combination of the three options. This would be consistent with the need for a 
gradual  regulatory  approach  in  the  context  of  a  nascent  market  and  the  vast  difference  between  fully 
permissionless and persmissioned networks where some control is centralised.     

For ‘stablecoins’, Commission services envisaged three options: 1) bespoke legislative measures on ‘stablecoin’ 
issuers; 2) regulating ‘stablecoins’  under EMD2, as some ‘stablecoins’ are close to the  e-money  definition and 
are used as payment instruments; 3) measures aimed at limiting issuances and services related to ‘stablecoins’ 
in  the  EU  (except  if  they  comply  with  existing  frameworks).  By  following  a  strict  risk-based  approach,  the  first 
option  would  address  vulnerabilities  to  financial  stability,  while  supporting  innovation.  By  contrast,  the  second 
and third options might not adequately address significant risks to consumer protection (for example those raised 
by  wallet  providers).  Furthermore,  option  3  could  leave  some  financial  stability  risks  unaddressed,  if  EU 
consumers  widely  use  ‘stablecoins’  issued  in  third  countries.  Therefore,  the  preferred  option  as  regards 
‘stablecoins’ is a combination of option 1 and 2.        

Who supports which option?  
For crypto-assets that are not covered by EU financial regulation, a large majority of the respondents (68%) to 
the Commission’s public consultation held the view that an EU bespoke regime for crypto-assets would enable a 
sustainable  crypto-asset  ecosystem  in  the  EU.  For  crypto-assets  that  qualify  as  financial  instruments,  a  large 
majority  of  respondents  underlined  the  need  for  a  common  EU  approach  when  a  crypto-asset  qualifies  as  a 
financial  instrument.  The  majority  of  respondents  also  favoured  a  gradual  regulatory  approach,  first  providing 
legal clarity as regards the use of permissioned DLT (i.e. only allowing registered members) in the trading and 
post-trading  areas  rather  than  accommodating  permissionless  networks  (in  which  any  entity  could  participate 
without registration) as these DLTs are still at an early stage of development. On the issue of ‘stablecoins’ and 
‘global stablecoins’, the majority of respondents were in favour of imposing several requirements on the issuers 
and/or  managers  of  the  reserve.  A  minority  of  stakeholders  considered  an  extension  of  EMD2  to  be  the  most 
appropriate regulatory approach.  

C. Impacts of the preferred option 

What are the benefits of the preferred options?                                      
First, the measures would allow crypto-assets to develop, as fast and cheap means of payment able to compete, 
especially  for  cross-border  transactions,  with  existing  payment  instruments.  Cost  savings  would  be  particularly 
important in the remittances area. Based on estimates, these could range from €220 to 570 million per year. This 
will  also  contribute  to  enhancing  financial  inclusion  within  the  EU.  Second,  the  framework  will  also  enable  the 
take-up of crypto-asset and security token issuances by EU corporates in the EU, as a complementary financing 

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tool for EU corporates, including SMEs. Third, creating a bespoke regime for crypto-assets that are not financial 
instruments,  would  extend  consumer  protection  rules  to  these  and  ensure  market  integrity  and  stability.  The 
preferred  options  will  therefore  contribute  to  the  objectives  of  the  Capital  Markets  Union,  by  diversifying  the 
sources  of  financing  of  EU  companies  away  from  bank  lending.  It  is  not  possible  to  estimate  the  overall 
additional  funding  made  available  through  crypto-asset  issuances  as  this  depends  on  various  external  factors 
(such as issuers’ need for funding, current market sentiment and competitive reaction of other funding channels). 
However, the funding costs for crypto-asset issuances are expected to be 20-40% lower than for a comparably 
sized initial public offering of traditional securities. Third, the preferred option should have a positive impact on 
the  trading  and  post-trading  of  security  tokens,  by  providing  legal  clarity  on  how  existing  legislation  apply, 
removing  regulatory  obstacles  and  creating  a  dedicated  framework  on  DLT  market  infrastructures.  Potential 
efficiency gains due to a wide use of DLT and security tokens in EU cash equity markets have been estimated at 
€540 million per year. However, beyond regulatory issues, the full deployment of security tokens and DLT in the 
entire  trading  and  post-trading  chain  will  also  depend  on  the  resolution  of  technological  issues  (such  as 
scalability  and  interoperability  of  different  DLT  networks).  Therefore,  the  envisaged  measures  will  only  form  a 
stepping-stone to reaping these efficiency gains in the medium to long run by facilitating innovation and enabling 
a gradual EU standard setting process.   

What are the costs of the preferred option (if any, otherwise main ones)?                                        
The  preferred  options  will  impose  compliance  costs  on  ‘stablecoin’  issuers  as  well  as  providers  of  services 
related to crypto-assets that currently fall outside EU financial regulation. The application of the envisaged new 
regime  for  currently  unregulated  crypto-assets  service  provider  is  expected  to  give  rise  to  one-off  compliance 
costs between €2.8 – 16.5 million and on-going compliance costs between €2.2 – 24 million, depending on the 
number  of  entities  seeking  an  authorisation.  Legal  clarifications  and  the  launch  of  the  pilot  regime  for  security 
tokens  will  imply  only  small  compliance  costs  for  trading  venues  opting  to  list  these  tokens.  The  authorisation 
and ongoing compliance costs for new DLT market infrastructure operators is expected to lie in a similar range 
as  for  MiFID  II-authorised  multilateral  trading  facilities.  Additional  costs  falling  on  issuers  of  global  stablecoins 
could  not  be  estimated  given  that  no  such  tokens  exist  in  the  market  today.  Issuers  of  crypto-assets  that  are 
outside  the  current  regulatory  perimeter  will  have  to  publish  an  information  document.  The  overall  costs 
(including legal fees) are estimated to range between €35.000  – 75.000 per issuance,  including potential legal 
and other costs.  

How will businesses, SMEs and micro-enterprises be affected? 

The preferred options should have an overall positive impact on SMEs. They should increase non-bank funding 
sources for SMEs, through the development of initial coin offerings (ICOs) and securities token offerings (STOs). 
ICOs  can  offer  an  opportunity  for  start-ups  to  raise  substantial  amounts  of  funding  at  an  early  stage  of 
development,  with  potential  cost  savings  compared  to  IPOs.,  The  funding  costs  of  crypto-assets  under  the 
regime should be 20-40% lower than those of initial public offerings of similar  size. The preferred option would 
also impose some compliance costs on SME  issuer of crypto-assets that can  be estimated at around €35,000 
per issuance.   

Will there be significant impacts on national budgets and administrations? 
The  preferred  options  would  impose  some  supervisory  costs  on  National  Competent  Authorities  (NCAs)  of 
Member States. This supervision of crypto-asset issuers and service providers subject to the new requirements 
would entail one-off costs estimated at around €140,000 and ongoing costs estimated to range between 350,000 
and  500,000  per  year.  The  new  DLT  market  infrastructure  would  also  impose  costs  on  NCAs  estimated  at 
between  €150,000  and  250,000  per  year.  The  costs  involved  for  the  supervision  of  ‘stablecoin’  issuers  are 
difficult  to  estimate  at  this  stage,  as  they  will  depend  on  the  business  models  at  stake.  The  fees  levied  on 
supervised entities by the NCAs will partially offset these costs.   

Will there be other significant impacts?  
The preferred options would foster EU competitiveness, by enabling new market entrants to develop DLT-based 
market  infrastructures  for  the  trading  and/or  settlement  of  security  tokens  competing  with  the  legacy 
infrastructures  in  the  medium  to  long  term.  The  pilot  regime  on  DLT  market  infrastructure  will  also  allow  EU 
market  participants  to  compete  with  entities  established  in  third  countries  that  have  put  in  place  favourable 
regime  for  the  take-up  of  DLT.  The  preferred  option  should  limit  the  negative  impact  on  the  environment.  The 
traditional  financial  sector  mainly  use  permission-based  DLT  that  consume  less  energy.  Furthermore,  some 
permissionless  DLT  used  for  some  crypto-asset  issuances  are  planning  to  shift  to  different  consensus 
mechanisms (that allow for the validation of transaction on DLT) that require substantially less energy.   

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D. Follow up 

When will the policy be reviewed?  
The Commission will monitor the impact of the preferred option and will evaluate whether they are effective in 
achieving  the  stated  objectives  (enhancing  legal  certainty,  ensuring  consumer  protection,  market  integrity, 
financial stability and supporting innovation) on the basis of a list of precise indicators.   

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