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The future of crypto-asset regulation

For over a year, the European Central Bank (ECB) has been conducting investigations into the potential issuance of a digital Euro, with the participation of the European Parliament being a priority for the ECB. In a January 2023 an ECB press release stated that "a digital Euro would respond to the growing preference for electronic payments, making public money also available in digital form. Alongside cash, a digital Euro would offer Europeans access to payment methods that would allow them to make free payments anywhere in the European Union. Its ease of access and convenience would promote adoption and financial inclusion." The ECB expressed its plans to begin the implementation phase of the process after October of the current year, starting with a pilot scheme. ECB President Christine Lagarde expects the ECB to make a final decision on whether to launch the digital Euro in 2026 or 2027.

Simultaneously, on April 20, 2023, the European Parliament approved the Markets in Crypto-Assets Regulation (MiCA). This regulation aims to establish a clear and consistent framework for the Crypto-Assets market in the European Union. The regulation arises from the need to "ensure that Union legislation on financial services is adapted to the digital era and contributes to a forward-looking economy serving people, for which it is necessary to enable the use of innovative technologies, among others."

Both projects are interconnected as they aim to address the growing demand for digital payment methods and the lack of regulation and security for users. Moreover, they seek to facilitate financial inclusion for various sectors, including small and medium-sized enterprises. Additionally, both the Crypto-Assets included in the regulation and the digital Euro operate based on a blockchain system. The MiCA regulation seeks to regulate the use of Crypto-Assets in response to their increasing prevalence, fostering economic growth and generating new employment opportunities within the European Union by leveraging distributed ledger technology such as blockchain. Regarding the digital Euro, the ECB emphasized that it intends to serve as a complement to cash rather than a replacement for it. Its purpose is to establish an infrastructure and issue tokens for the new system while leaving day-to-day operations to commercial banks. It is important to remember that the digital Euro, as a digital asset issued by the ECB, is not subject to MiCA.

Implications for Colombia

The adoption of MiCA and the potential issuance of a digital Euro help lay the foundations for global regulation. The introduction of the digital Euro could expedite discussions in Colombia regarding the issuance of a Central Bank Digital Currency (CBDC), while the existence of Crypto-Assets regulations provides a guiding framework for policymakers. MiCA, on the other hand, is the world's first comprehensive regulatory regime specifically tailored to Crypto-Assets. Its issuance in such an important region as Europe sets a precedent for the adoption of Crypto-Assets regulations worldwide. Although several legislative initiatives to regulate Crypto-Assets in Colombia have been seen in recent years, no regulation has been issued for them thus far, beyond communications from regulatory entities such as the Colombian Central Bank, the Financial Superintendency of Colombia, and the Colombian tax authority (“DIAN”).

Currently, a bill is under discussion in Congress that aims to regulate CryptoAsset exchange platforms in Colombia. The adoption of MiCA could enhance consumer security as the absence of a general framework for Crypto-Asset markets carries the risk of users distrusting these assets. This lack of trust could hinder market development and impede the potential benefits of innovative digital services. A comprehensive framework established by MiCA would instill confidence in both users and Crypto asset platforms.

The law reflects the reality of society, and, in that sense, it has to face the evergrowing importance of Crypto-Assets in society and international markets. The introduction of cryptocurrency regulation responds to the need to regulate an existing asset class that has experienced exponential growth in recent years. Therefore, the publication of MiCA can be a great incentive for the Colombian legislature to expedite the enactment of comprehensive regulation for CryptoAssets in different jurisdictions, including the national territory.

 

 

Authors

Portrait ofEliana Jácome
Eliana Jácome
Associate
Bogotá
María Antonia Recio