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Noemie Papp

Legal adviser

Consumer Affairs & Coordinator Digital issues

n.papp@ebf-fbe.eu

www.ebf-fbe.eu

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FOR MORE INFO CONTACT

Noemie Papp

Legal Adviser

Consumer Affairs & Coordinator Digital issues

n.papp@ebf-fbe.eu

www.ebf-fbe.eu

FIVE ACTIONS FOR THE FUTURE OF DIGITAL BANKING:

  • 1Boost digital inclusion by developing public-private partnerships between banks and public authorities.
  • 2Organise a full-fledged stakeholders debate on innovative payments and pan-EU solutions with consideration for costs and benefits for all stakeholders.
  • 3Promote a cybersecurity awareness campaign highlighting existing and new threats, making digital finance more secure and building trust.
  • 4Conduct a ‘fitness check’ on existing financial services legislation to adjust to the global market reality and to ensure consistency.
  • 5Conduct a joint assessment by both government and industry on opportunities and impact of crypto-technologies.

FOR MORE INFO CONTACT

Noemie Papp

Legal Adviser

Consumer Affairs & Coordinator Digital issues

n.papp@ebf-fbe.eu

www.ebf-fbe.eu

Crypto-technologies

Crypto-technologies

RECOMMENDATIONS

Crypto-technologies

  • 1 Conduct a joint assessment by both governments and industry on the opportunities and impact of crypto-technologies (ranging from land registry automation to improved Anti-Money Laundering processes, faster clearing and settlement cycles in payments and more automated and electronically auditable services in the financial securities’ space). Maintaining innovation should remain however a prerequisite for the development of crypto-technologies.
  • 2 Build a comprehensive regulatory approach to crypto-technologies to help overcome uncertainty for legitimate users e.g. transactions in crypto-currencies should be subject to the same regulatory standards as transactions executed in electronic or physical money, in particular in relation to Anti-Money Laundering and Terrorist-Financing. This would also protect consumers from fraud or high-risk exposure. Consumers and companies using services involving crypto-currencies should benefit from similar levels of protection as conventional payment services’ providers in terms of oversight, compliance, consumer protection, governance requirements and information obligations
  • 3 Make transactions subject to the same regulatory standards (Anti-Money Laundering Financial Action Task Force (AML – ATF))

Crypto-technologies

Crypto-technologies are one of the major IT innovations to have appeared in recent years, proposing new systems, processes and ways to transact. They provide a distributed recording system which guarantees the possibility of identifying irrefutably transactional data. Furthermore, they build and monitor any transaction or event via a joint network without intervention from a third party or central authority.

Opportunities

The underlying technology of a distributed ledger, also called “blockchain”, provides a number of interesting opportunities both for financial institutions individually and for the collective ecosystem. The “blockchain” ledger can link individuals and companies to virtual acquisitions and ownership by allowing individual parties to process payments and verify transactions. More importantly “blockchain” technology offers an extremely high level of security. In the case of asset registry, for example, the use of a public ledger to register asset will limit the intervention of a central authority. Transactions will include a reference to an existing asset, meaning that the ownership of the asset will also be the owner of the private key to the public record.

Using such technology offers clear opportunities to reduce costs of moving and handling money, to secure consumer spending, and to introduce greater liquidity to the market. It also improves offers of products and services and increases banks’ velocity in all their activities.

The digital ledger of transactions can be used to enable the digitalisation of components of the current financial system. Its implementation would establish an extensible, decentralised, trustworthy, and immutable generic transaction store that enables encoding of business logic, laws, and other rules. Those new technologies will lead to automated processes and documentary tasks, leading to a reduction of the costs (e.g. in the case of credit record with the use of multi-signature wallet, transactions could be executed automatically).

Companies are currently developing applications using crypto-technologies’ underlying technical innovations to increase transparency and efficiency, benefitting consumers, merchants, governments and regulators alike.

Barriers

Crypto-technologies are still in a building phase due to the lack of common approach and uniform platform. For example, when looking at crypto-currency schemes, we have to observe that many of these have not yet achieved the maturity levels that would otherwise be expected from a currency. For example, they do not offer consumers the same level of protection as the currency made legal tender through government decree. “Bitcoin” crypto-currency represents probably one of the most well-known examples of crypto-technology. However, its future as a currency is unclear, given that it was built as an experiment.

The European Banking Authority (EBA), in an opinion10published in 2014, identified more than 70 associated risks of crypto-currency schemes, most of them related to money laundering and other financial crimes. Yet, the same report also demonstrated that with a proper body of regulation, most of those risks could be mitigated. Regulatory initiatives in relation to crypto-currency schemes and participants in the value chain (i.e. such as the Federal Reserve System’s (FED) assessment on Crypto-currencies Exchangers to be considered as Money Transmitter) would build trust and improve the strength of those platforms.

The EBA also recommended that EU legislators consider declaring market participants at the direct interface between conventional and virtual currencies (e.g. virtual currency exchanges), to become “obliged entities” under the EU Anti-Money Laundering Directive and thus subject to its anti-money laundering and counter-terrorist financing requirements. Differences between schemes should also be taken into account so as to develop a comprehensive regulatory framework that brings certainty to the technology beyond “crypto-currencies”. Application and acceptance by customers is not yet clear. Considering the forthcoming regulatory developments in crypto-technologies, a close monitoring of the evolution of the regulation and a better understanding of the use of this technology is recommended, particularly, in the context of “instant payments” and “inter-PSP payments”.