distributed ledger technology

ESMA Issues Report on Distributed Ledger Technology

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On February 7, 2017, the European Securities and Markets Authority (“ESMA“) published a report regarding distributed ledger technology (“DLT“).

DLT is a developing technology that has the potential to significantly alter and bring a number of benefits to securities markets. These benefits include, among others, enhanced efficiency in post‑trade processes, enhanced reporting and reduced costs. With these prospective benefits, however, come potential risks and legal questions.

ESMA has therefore issued a report that summarizes its position on DLT, with a note that it will continue to monitor this dynamic technology and consider whether a regulatory response may become a necessity.

The full report is available here.

Draft Report on Virtual Currencies Published by EU Committee on Economic and Monetary Affairs

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On February 25, a draft report on the subject of virtual currencies was published by the European Parliament’s Committee on Economic and Monetary Affairs (“ECON“).

The draft report consists of a motion for a European Parliament Resolution and an Explanatory Statement. The motion contains an analysis of virtual currencies (“VC“s) and distributed ledger technology (“DLT“). The motion stresses that VCs and DLT have the potential to contribute positively to consumer welfare and economic development by, amongst other things:

  • Lowering transaction costs for payments and transfers of funds and thereby reducing global total costs for remittances by up to €20 billion
  • Reducing the cost of access to finance without a traditional bank account
  • Enhancing the speed and resilience of payment systems
  • Providing for a high degree of privacy, but without full anonymity so that transactions can be traced back in case of malfeasance

However, the motion also notes the following risks which should be addressed appropriately:

  • The potential for money laundering, terrorist financing and tax fraud
  • The sometimes limited capacity of regulators in the area of new technology
  • The legal uncertainty surrounding new applications of DLT, which may be the subject of (sometimes ill-suited) existing legislation or of no regulation at all

ECON argues that regulatory capacity must be enhanced in light of these risks but calls for a proportionate regulatory approach so as not to stifle innovation at an early stage. ECON welcomes the European Commission’s suggestions for including VC exchange platforms in the Fourth Money Laundering Directive ((EU) 2015/849) and recommends a review of EU legislation on payments, including the Payment Services Directive (2007/64/EC) and the second Electronic Money Directive (2009/110/EC).