The European Commission, the executive branch of the European Union, responsible for implementing legislation, adopted on 24 September 2020 a new Digital Finance Package which focuses on Digital Finance and Retail Payment Strategies and legislative proposals on crypto-assets and digital resilience.
The Digital Finance Package aims to boost responsible innovation in the EU's financial sector especially for highly innovative digital start-ups, while mitigating any potential risks related to investor protection, money laundering and cyber-crime.
The Digital Finance Package consists of the following:
Crypto-assets legislation;
Digital Finance Strategy;
Retail Payments Strategy; and
Cybersecurity legislation.
Valdis Dombrovskis, Executive Vice-President of the European Commission for an Economy that Works for People stated that:
The future of finance is digital... Technology has much more to offer consumers and businesses and we should embrace the digital transformation proactively, while mitigating any potential risks.
The proposed legislation on crypto-assets known as the 'Regulation on Markets in Crypto Assets' (MiCA) aims to provide legal clarity and certainty for crypto-assets issuers and providers including for the issuers of stablecoins citing more stringent requirements such as terms of capital, investor rights and supervision.
This comes after the recent announcement of the first digital asset bank in Wyoming. It will be interesting to see whether the European Commission will adopt legislation similar to the Wyoming HB 74, which creates Special Purpose Depository Institutions (SPDIs) permitted to deal in a regulated way with digital assets and virtual currencies.
The Digital Finance Package also includes of the Digital Finance Strategy which aims to make Europe's financial services more digital-friendly with a focus on data management and open finance to level the playing field among providers of financial services whether it is traditional banks or technology companies.
Another strategy adopted by the European Commission is the Retail Payment Strategy which aims to bring safe, fast and reliable payment services to European citizens and businesses through instant cross-border payment solutions and fully integrated retail payments.
The European Commission also published, on 24 September 2020, the findings of a public consultation of a Retail Payments Strategy for Europe. The findings were taken into account in the Digital Finance Package and illustrated a clear support by a majority of respondents for the usefulness of instant payments and preference for digital payment solutions over paper-based payment instruments.
Lastly, the Digital Finance Package also propose legislation on digital operational resilience known as the 'Digital Operational Resilience Act' (DORA) aimed to ensure that risks of cyber-attacks and related disruptions and threats are mitigated by IT providers for financial firms and the providers of financial services themselves.
The Digital Finance Package is a welcomed development as businesses remain in a holding pattern in many jurisdictions, including Australia, waiting for clear guidance and implementation of digital asset legislation to help broader adoption of innovative financial tools. The Digital Finance Finance Package will likely bring an increase in competitiveness and innovation in the financial sector for Europe, paving the way for the EU to become a global standard-setter in digital assets.
The question remains - will Australian policy and regulation keep up?
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