European Central Bank offers advice on digital asset licensing

By: Mark Jessy

August 18, 2022 5:38 AM

The ECB will specifically take into account the corporate governance, business models, and "fit and appropriate" determinations used to license other companies of crypto industries.

The criteria that the European Central Bank, or ECB, would take into account when standardizing the licensing regulations for cryptocurrency throughout Europe, has been outlined.

Following the passage of the Markets in Crypto-Assets (MiCA) regulation and the Basel Committee on Banking Supervision issuing guidelines for banks' exposure to cryptocurrency, the ECB's banking supervision division said in a statement on Wednesday that it would be taking steps to regulate digital assets because "national frameworks governing crypto-assets diverge quite extensively" and given the seemingly different approaches to harmonization. The ECB announced that it would evaluate license requests for crypto-related activities and services using standards from the Capital Requirements Directive, which has been in operation since 2013.

The central bank will specifically take into account the internal governance of crypto enterprises, their business strategies, and "fit and proper" evaluations that are used to license other corporations. Furthermore, the ECB declared that it will rely on national Anti-Money Laundering (AML) agencies and the financial intelligence divisions of the relevant nations to supply the information required to evaluate potential threats.

The ECB stated that "the level of expertise and experience in the realm of crypto should be higher the higher the complexity or relevance of the crypto company." "Key protections include chief risk officers with substantial experience in this area and senior managers or board members with significant IT competence."

The role that cryptocurrencies might play in Europe is now being studied, according to the ECB, and will "remain a focus for European banking supervision in years to come." Global regulators may start to harmonize laws for crypto service providers within the European Union with the passage of MiCA.

According to a survey published on August 2 by the ECB, a central bank digital currency is preferred above Bitcoin (BTC) and other options for cross-border payments. The collapse of Terra was previously cited by officials as a probable instance of a stablecoin endangering the financial system, and they advised the implementation of supervisory and regulatory measures to lower risk.