Propensity to change: Founded numerous international groups to promote blockchain adoption including the Blockchain Partnership and INATBA. Leadership and strategy from the EU Blockchain Observatory & Forum.
Legal certainty: They have created specific regulations defining virtual currencies (5AMLD) and have been pushing the Commission to come up with regulation (Motion for a Resolution and trade policy report). They also have a Fintech Action plan.
Infrastructure: lots of investment through Horizon2020.
The European Union (EU) is already a bellwether in regulating Big Tech and data protection standards and has enacted a number of policies to promote the use of blockchain across Europe. Key to the EU’s strategy is setting the right conditions for the advent of an open, innovative, trustworthy, transparent, and EU law-compliant data and transactional environment. The aim is to enable a EU-level framework supporting blockchain-based services that respects the maximum harmonisation principle of the Single Market. Three institutions stand at the heart of this blockchain implementation in Europe: the European Parliament, the European Commission, and the EU Blockchain Observatory & Forum.
The EU already stands ahead of most jurisdictions in establishing a regulatory space to encourage blockchain adoption. The latest legislative initiatives suggest a strong will in the EU parliament to implement a solid regulatory framework that will bring legal certainty to the blockchain space.
- The European Parliament first adopted a Motion for a Resolution on Distributed ledger technologies and blockchains: building trust with disintermediation (October 2018). The motion calls on the Commission to undertake policy initiatives related to Distributed Ledger Technologies (DLTs) that will promote the EU’s competitive position in this area and positively affect many sectors of society such as energy, transport, health, supply chains, education, creative industries, and financial. Crucially, this motion has become a reference point for future blockchain-related reports in Parliament and has provided guidelines to the Commission, along with policy directions, preparing the ground for further action.
- Building on this motion, Parliament then passed the Report on Blockchain: a forward-looking trade policy (December 2018). The Report highlights the current sub-optimal issues in supply chains, EU trade policy and customs procedures, identifies the plausible benefits derived from widespread blockchain implementation, and recommends gradual policy steps to the European Commission and Member States to enable this technology to function.
- While cryptocurrency is not the primary focus of this report, it is nevertheless worth noting that the exponential rise in the use of cryptocurrencies has also led to growing concerns over the use of blockchain technology for transferring value in a way that circumvents authorities and regulatory oversight. As such, the Fifth Anti-Money Laundering Directive (5AMLD) (May 2018), increased the scope of EU AML rules to include exchange service providers between virtual and fiat currencies as well as custodian wallet providers.
Meanwhile, the European Commission has also taken positive steps to promote blockchain innovation across Europe. The two Directorate Generals key to the EU’s blockchain strategy and policies are: the Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA), responsible for EU policy on banking and finance; and the Directorate General for Communications Networks, Content and Technology (DG CONNECT), responsible for developing a digital single market to generate smart, sustainable and inclusive growth in Europe.
- DG FISMA’s main input in this space has been through its FinTech Action Plan (March 2018). The Plan aims to aid the financial industry in making use of rapid tech advancements including blockchain. Based on this Plan, the Commission tasked the European Supervisory Authorities (ESAs) to consider, within their own remit, the crypto-asset space (including cryptocurrencies).
In January 2019, both the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) published their advice to the Commission. The EBA concluded that the Commission should carry out a cost/benefit analysis to assess, on a holistic basis, whether EU-level action is appropriate and feasible at this stage to address the issues identified. Such a cost/benefit analysis should take account of the potential application of DLT and crypto-assets beyond the financial sector, and should extend to aspects relating to the environmental impact of some crypto-asset activity. The EBA also advised the European Commission to have regard to the latest recommendations and any further standards or guidance issued by the Financial Action Task Force (FATF) as part of a holistic review of the need, if any, for action at the EU level. It also called on the Commission to take steps where possible to promote consistency in the accounting treatment of crypto-assets. ESMA supported this view, adding in its own report that greater clarity should be provided for crypto-assets that constitute financial instruments and a bespoke regime should be implemented for those that do not. Based on the ESAs’ findings, the Commission will now assess whether and what type of legislative action is needed.
- DG CONNECT considers blockchain to be one of the key technologies that will underpin the Digital Single Market. To this end, it first launched the Blockchain Partnership (April 2018), a Declaration signed by multiple Member States, which aims to:
- promote cooperation towards a European blockchain infrastructure;
- develop governance models, compliant with EU laws and reflecting its values;
- ensuring interoperability;
- stimulate new business models; and
- position Europe in a leadership role;
- DG CONNECT also announced the creation of an International Association for Trusted Blockchain Applications (INATBA) (November 2018), in cooperation with industry leaders. While the Commission is involved in this initiative as a facilitator to help bring together private and public organisations involved in Blockchain and DLTs, it will not become a member itself. The process for setting up the Association as an “Association Internationale Sans But Lucratif” (i.e a non-profit association) under Belgian law began on 6 March 2019. The Association was officially launched on 3 April 2019. It aims to develop a framework that promotes public and private sector collaboration, regulatory convergence, legal predictability and ensures the system’s integrity and transparency.
Finally, a major tool for assessing blockchain-related policies at the EU level is undoubtedly the EU Blockchain Observatory & Forum.
- Launched in February 2018, this body aims to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU, and so help cement Europe’s position as a global leader. It is run under the aegis of DG CONNECT. Partners include ConsenSys AG (general contractor), the University of Southampton, the Knowledge Media Institute at the Open University, University College London, and the Lucerne University of Applied Sciences.
- Although the Observatory does not have direct legal significance, its reports, such as “Blockchain for Government and Public Services” and “Blockchain and the GDPR” will certainly be considered by the Commission when assessing legislative action.
The EU is also heavily investing in research innovation and start-ups. Through the Connecting Europe Facility and Horizon2020 Programmes, the EU is co-investing in the most advanced digital infrastructure and innovative start-ups.