UPDATE (27th April 11:05): Comment added from Dr Timo Schlaefer, co-founder and CEO of Crypto Facilities, a bitcoin derivatives trading platform.
The EU’s securities watchdog has issued a call for evidence to ascertain if and when blockchain technology can “enter the financial mainstream”.
The European Securities and Markets Authority (ESMA), which oversees securities markets in the region, has spent six months monitoring investment in the bitcoin sector.
Now the regulator is seeking feedback from industry stakeholders on how the technology underlying cryptocurrencies can be used to “issue, buy and sell and record ownership of securities”.
The ESMA said in a statement:
“ESMA is interested in how different virtual currencies and the associated blockchain, or distributed ledger, can be used in investments. There are now facilities available to use the blockchain infrastructure as a means of issuing, transacting in and transferring ownership of securities in a way that bypasses the traditional infrastructure.”
Use beyond currency
The ESMA is asking industry stakeholders to assess its document and answer 10 questions about the types of crypto-securities and investment products in use, as well as elaborate on the associated risks and rewards they pose for investors.
The documents name a number of “collective investment schemes” operating worldwide, including Jersey hedge fund GABI and Bitcoins Reserve, a cryptocurrency arbitrage fund in the British Virgin Islands.
Bank to the Future CEO Simon Dixon, who has been heavily involved in the UK’s crypto-crowdfunding sector, told CoinDesk he was pleased that the ESMA was starting to recognise that blockchains have use beyond currency.
However, more details should be given about what the organisation wishes to use the contributions for, he said.
Dixon remarked:
“No doubt ESMA’s call for information will be about introducing tighter regulations into blockchain financial markets, but perhaps it will result in more transparent and fair financial markets being developed to stimulate innovation.”
“Anything that improves access to finance for startups is a good thing,” he added.
Speaking to CoinDesk, Dr Timo Schlaefer, co-founder and CEO of London-based bitcoin derivatives broker Crypto Facilities, was equally pleased that “educated players” were showing interest in the sector. He confirmed that his company will be among those responding to the ESMA.
“We will … outline our view on how securities on digital assets should be structured so as to minimise the risk for market participants, in particular credit risk and operational risk,” Schlaefer said.
He added:
“We think regulation would be beneficial if it enhances the protection of market participants and as long as it does not place unreasonable burdens on the space or hampers innovation.”
The UK Treasury issued its own Call for Information last November to ascertain how best to regulate digital currency companies and protect consumers.
After receiving more than 120 responses, the government outlined a series of landmark plans including anti-money laundering (AML) regulations and £10m in research funding to coincide with the Chancellor of the Exchequer’s annual budget speech. Feedback from the country’s crypto startup community was widely positive.
According to the ESMA document, all contributions it receives will be made public, unless requested otherwise. The deadline for responses is 21st July 2015.