Digital finance legislation: Overview and state of play

Summary:

Digital finance can broadly be defined as financial services and instruments that use or are based on new information and communication technologies (ICT). A wide range of segments of the financial system are therefore concerned, from digital payment services to the new market infrastructures of crypto-assets using distributed ledger technologies (DLT). Policymakers expect digital finance to benefit the financial system – for example, in terms of transaction and settlement costs, as well as financial inclusion. However, digital finance also poses new risks, especially for financial stability and the protection of citizens. The idea behind the EU regulatory approach is that by providing a sound regulatory framework, homogenous throughout the EU, these risks can be monitored and controlled, while also favouring the desired innovation. To that end, the European Commission, together with the European supervisory authorities and the European Central Bank, conduct regular reviews of the EU regulatory framework and check its ability to face these risks and the potential needs for intervention. In 2020, the Commission tabled a major digital finance strategy to provide a sound, EU-level regulatory and supervisory framework in a number of digital finance domains. The EU has already adopted new laws resulting from this initiative. The Regulation on Markets in Crypto-assets is establishing a new legal environment for DLT-based 'coins' with a stable value ('stablecoins'); another regulation will provide a framework for the monitoring and control of digital operational resilience for the financial sector. More legislative procedures are ongoing in the fields of open finance and the digital euro. New directions are being suggested, such as the establishment of a 'unified ledger', to smoothen transfers between instruments using different DLT market infrastructure.

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