EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Europaudvalget 2019-20
EUU Alm.del Bilag 546
Offentligt

Draft ID: b95e140c-9988-44c4-8a13-18f43a13cb54

Date: 31/03/2020 15:39:58

Public consultation an EU framework for

markets in crypto-assets

Fields marked with * are mandatory.

Introduction

This consultation is also available in

German

and

French

Background for this public consultation

As stated by President von der Leyen in her political guidelines for the new Commission, it is crucial that Europe grasps

all the potential of the digital age and strengthens its industry and innovation capacity, within safe and ethical

boundaries. Digitalisation and new technologies are significantly transforming the European financial system and the

the

Fintech action plan in March 2018

, the actions set out in it have largely been implemented.

way it provides financial services to Europe’s businesses and citizens. Almost two years after the Commission adopted

In order to promote digital finance in Europe, while adequately regulating its risks, in light of the mission letter of

Executive Vice-President Dombrovskis the Commission services are working towards a new Digital Finance Strategy

for the EU. Key areas of reflection include deepening the Single Market for digital financial services, promoting a data-

driven financial sector in the EU while addressing its risks and ensuring a true level playing field, making the EU

financial services regulatory framework more innovation-friendly, and enhancing the digital operational resilience of the

financial system.

This public consultation, and the parallel public consultation on digital operational resilience, are first steps to prepare

potential initiatives which the Commission is considering in that context. The Commission may consult further on other

issues in this area in the coming months.

As regards blockchain, the European Commission has a stated and confirmed policy interest in developing and

promoting the uptake of this technology across the EU. Blockchain is a transformative technology along with, for

example, artificial intelligence. As such, the European Commission has long promoted the exploration of its use across

sectors, including the financial sector.

Crypto-assets are one of the major applications of blockchain for finance. Crypto-assets are commonly defined as a

value

. For the purpose of this consultation, they will be defined as “a digital asset that may depend on cryptography

type of private assets that depend primarily on cryptography and distributed ledger technology as part of their inherent

and exists on a distributed ledger”. Thousands of crypto-assets, with different features and serving different functions,

have been issued since Bitcoin was launched in 2009

. There are many ways to classify the different types of crypto

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

assets

. A basic taxonomy of crypto-assets comprises three main categories: ‘payment tokens’ that may serve as a

means of exchange or payment, ‘investment tokens’ that may have profit-rights attached to it and ‘utility tokens’ that

may enable access to a specific product or service. The crypto-asset market is also a new field where different actors -

such as the wallet providers that offer the secure storage of crypto-assets, exchanges and trading platforms that

facilitate the transactions between participants – play a particular role

Crypto-assets have the potential to bring significant benefits to both market participants and consumers. For instance,

initial coin offerings (ICOs) and security token offerings (STOs) allow for a cheaper, less burdensome and more

inclusive way of financing for small and medium-sized companies (SMEs), by streamlining capital-raising processes

and enhancing competition. The ‘tokenisation’ of traditional financial instruments is also expected to open up

opportunities for efficiency improvements across the entire trade and post-trade value chain, contributing to more

efficient risk management and pricing

. A number of promising pilots or use cases are being developed and tested by

new or incumbent market participants across the EU. Provided that platforms based on Digital Ledger Technology

(DLT) prove that they have the ability to handle large volumes of transactions, it could lead to a reduction in costs in the

trading area and for post-trade processes. If the adequate investor protection measures are in place, crypto-assets

could also represent a new asset class for EU citizens. Payment tokens could also present opportunities in terms of

cheaper, faster and more efficient payments, by limiting the number of intermediaries.

Since the publication of the FinTech Action Plan in March 2018, the Commission has been closely looking at the

opportunities and challenges raised by crypto-assets. In the FinTech Action Plan, the Commission mandated the

applicability and suitability of the existing financial services regulatory framework to crypto-assets. The advice

received

in January 2019 clearly pointed out that while some crypto-assets fall within the scope of EU legislation, effectively

applying it to these assets is not always straightforward. Moreover, there are provisions in existing EU legislation that

may inhibit the use of certain technologies, including DLT. At the same time, EBA and ESMA have pointed out that

most crypto-assets are outside the scope of EU legislation and hence are not subject to provisions on consumer and

investor protection and market integrity, among others. Finally, a number of Member States have recently legislated on

issues related to crypto-assets which are currently not harmonised.

A relatively new subset of crypto-assets – the so-called “stablecoins” - has emerged and attracted the attention of both

the public and regulators around the world. While the crypto-asset market remains modest in size and does not

currently pose a threat to financial stability

, this may change with the advent of “stablecoins”, as they seek a wide

European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) to assess the

exchange their coins). As underlined by a recent G7 report

, if those global “stablecoins” were to become accepted by

large networks of customers and merchants, and hence reach global scale, they would raise additional challenges in

terms of financial stability, monetary policy transmission and monetary sovereignty.

Building on the advice from the EBA and ESMA, this consultation should inform the Commission services’ ongoing

work on crypto-assets

: (i) For crypto-assets that are covered by EU rules by virtue of qualifying as financial

instruments under the

Markets in financial instruments Directive – MiFID II

– or as electronic money/e-money under the

Electronic Money Directive – EMD2

– the Commission services have screened EU legislation to assess whether it can

be effectively applied. For crypto-assets that are currently not covered by the EU legislation, the Commission services

are considering a possible proportionate common regulatory approach at EU level to address, inter alia, potential

consumer/investor protection and market integrity concerns.

Given the recent developments in the crypto-asset market, the President of the Commission, Ursula von der Leyen, has

make the most of the opportunities they create and address the new risks they may pose”

. Executive Vice-president

Valdis Dombrovskis has also indicated his intention to propose a new legislation for a common EU approach on crypto-

assets, including “stablecoins”. While acknowledging the risks they may present, the Commission and the Council have

also jointly declared that they “are committed to put in place the framework that will harness the potential opportunities

that some crypto-assets may offer”

stressed the need for “a common approach with Member States on crypto-currencies to ensure we understand how to

adoption by consumers by incorporating features aimed at stabilising their ‘price’ (the value at which consumers can

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Responding to this consultation and follow up to the consultation

In this context and in line with

Better regulation principles

, the Commission is inviting stakeholders to express their

views on the best way to enable the development of a sustainable ecosystem for crypto-assets while addressing the

major risks they raise. This consultation document contains four separate sections.

First, the Commission seeks the views of all EU citizens and the consultation accordingly contains a number

of more general questions aimed at gaining feedback on the use or potential use of crypto-assets.

The three other parts are mostly addressed to public authorities, financial market participants as well as

market participants in the crypto-asset sector:

The second section seeks feedback from stakeholders on whether and how to classify crypto-assets.

This section concerns both crypto-assets that fall under existing EU legislation (those that qualify as ‘financial

instruments’ under MiFID II and those qualifying as ‘e-money’ under EMD2) and those that do not.

The third section invites views on the latter, i.e. crypto-assets that currently fall outside the scope of the

EU financial services legislation. In that first section, the term ‘crypto-assets’ is used to designate all the

crypto-assets that are not regulated at EU level

. At certain point in that part, the public consultation

makes further distinction among those crypto-assets and uses the terms ‘payment tokens’,

“stablecoins” ‘utility tokens’, ‘investment tokens’..

The aim of these questions is to determine whether an

EU regulatory framework for those crypto-assets is needed. The replies will also help identify the main risks

raised by unregulated crypto-assets and specific services relating to those assets, as well as the priorities for

policy actions.

The fourth section seeks views of stakeholders on crypto-assets that currently fall within the scope of

EU legislation, i.e. those that qualify as ‘financial instruments’ under MiFID II and those qualifying as ‘e-

money’ under EMD2. In that section and for the purpose of the consultation, those regulated crypto-

assets are respectively called ‘security tokens’ and ‘e-money tokens’.

Responses will allow the

Commission to assess the impact of possible changes to EU legislation (such as the Prospectus Regulation ,

MiFID II, the Central Security Depositaries Regulation, ...) on the basis of a preliminary screening and

assessment carried out by the Commission services. This section is therefore narrowly framed around a number

of well-defined issues related to specific pieces of EU legislation. Stakeholders are also invited to highlight any

further regulatory impediments to the use of DLT in the financial services.

To facilitate the reading of this document, a glossary and definitions of the terms used is available at the end.

The outcome of this public consultation should provide a basis for concrete and coherent action, by way of a legislative

action if required.

This consultation is open until 19 March 2020.

Commission’s Communication: “FinTech Action Plan: For a more competitive and innovative European financial sector”

EBA report with advice for the European Commission on ‘crypto-assets”

ESMA, “Advice on initial coin offerings and Crypto-Assets”

(March 2018)

January 2019

January 2019;

See: ESMA Securities and Markets Stakeholder Group, Advice to ESMA, October 2018

Increased efficiencies could include, for instance, faster and cheaper cross-border transactions, an ability to trade beyond current market

hours, more efficient allocation of capital (improved treasury, liquidity and collateral management), faster settlement times and reduce

reconciliations required. See: Association for Financial Markets in Europe, ‘Recommendations for delivering supervisory convergence on the

regulation of crypto-assets in Europe’, November 2019.

ESMA, “Advice on initial coin offerings and Crypto-Assets”

January 2019;

EBA report with advice for the European Commission on ‘crypto-assets”

, January 2019

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors, Financial Stability Board

2018

G7 Working group on “stablecoins”,

Report on ‘Investigating the impact of global stablecoins’

, October 2019

Speech by Vice-President Dombrovskis at the Bucharest Eurofi High-level Seminar

Mission letter of President-elect Von der Leyen to Vice-President Dombrovskis

4 April 2019

10 September 2019

Joint Statement of the European Commission and Council on “stablecoins”, 5 December 2019

Those crypto-assets are currently unregulated at EU level, except those which qualify as ‘virtual currencies’ under the AML/CFT framework

(see section I.C. of this document).

Please note:

In order to ensure a fair and transparent consultation process

only responses received through our

online questionnaire will be taken into account

and included in the report summarising the responses. Should you

have a problem completing this questionnaire or if you require particular assistance, please contact

fisma-crypto-

[email protected]

More information:

on this consultation

on the consultation document

on the protection of personal data regime for this consultation

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EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

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EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

255 character(s) maximum

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EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Public

Your personal details (name, organisation name and size, transparency

I agree with the

personal data protection provisions

I. Questions for the general public

As explained above, these general questions aim at understanding the EU citizens’ views on their use or potential use

of crypto-assets.

Question 1. Have you ever held crypto-assets?

Yes

Don’t know / no opinion / not relevant

Question 3. Do you plan or expect to hold crypto-assets in the future?

Yes

Don’t know / no opinion / not relevant

II. Classification of crypto-assets

There is not a single widely agreed definition of ‘crypto-asset’

. In this public consultation, a crypto-asset is considered

as “

a digital asset that may depend on cryptography and exists on a distributed ledger

”. This notion is therefore

money).

While there is a wide variety of crypto-assets in the market, there is no commonly accepted way of classifying them at

EU level. This absence of a common view on the exact circumstances under which crypto-assets may fall under an

existing regulation (and notably those that qualify as ‘financial instruments’ under MiFID II or as ‘e-money’ under EMD2

as transposed and applied by the Member States) can make it difficult for market participants to understand the

obligations they are subject to. Therefore, a categorisation of crypto-assets is a key element to determine whether

crypto-assets fall within the current perimeter of EU financial services legislation.

Beyond the distinction ‘regulated’ (i.e. ‘security token’, ‘e-money token’) and unregulated crypto-assets, there may be a

need for differentiating the various types of crypto-assets that currently fall outside the scope of EU legislation, as they

may pose different risks. In several Member States, public authorities have published guidance on how crypto-assets

should be classified. Those classifications are usually based on the crypto-asset’s economic function and usually

makes a distinction between ‘payment tokens’ that may serve as a means of exchange or payments, ‘investment

tokens’ that may have profit-rights attached to it and ‘utility tokens’ that enable access to a specific product or service.

At the same time, it should be kept in mind that some ‘hybrid’ crypto-assets can have features that enable their use for

more than one purpose and some of them have characteristics that change during the course of their lifecycle.

narrower than the notion of ‘

digital asset

’

that could cover the digital representation of other assets (such as scriptural

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

This section concerns both crypto-assets that fall under existing EU legislation (those that qualify as ‘financial instruments’

under MiFID II and those qualifying as ‘e-money’ under EMD2) and those falling outside.

Strictly speaking, a digital asset is any text or media that is formatted into a binary source and includes the right to use it.

Question 5. Do you agree that the scope of this initiative should be limited to

crypto-assets (and not be extended to digital assets in general)?

Yes

Don’t know / no opinion / not relevant

5.1 Please explain your reasoning for your answers to question 5:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Extending the scope to cover digital assets could have residual impact on various technical processes.

Question 6. In your view, would it be useful to create a classification of

crypto-assets at EU level?

Yes

Don’t know / no opinion / not relevant

6.1 If you think it would be useful to create a classification of crypto-assets at

EU level, please indicate the best way to achieve this classification (non-

legislative guidance, regulatory classification, a combination of both, ...).

Please explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Having a uniform taxonomy is important when discussing complex matters such as crypto-assets. However,

a classification of crypto-assets for regulatory purposes can lead to a simplified assessment of the assets.

Most crypto-assets have hybrid features of a varying degree.

If a classification is made for regulatory purposes, it is important that it takes factors such as degree of

decentralization, autonomy, front- and backend functionality and usability into account.

Question 7. What would be the features of such a classification?

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 7. What would be the features of such a classification?

When providing your answer, please indicate the classification of crypto-

assets and the definitions of each type of crypto-assets in use in your

jurisdiction

(if

applicable).

Please explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 6.1.

Question 8. Do you agree that any EU classification of crypto-assets should

make a distinction between ‘payment tokens’, ‘investment tokens’, ‘utility

tokens’ and ‘hybrid tokens’?

Yes

Don’t know / no opinion / not relevant

8.2 Please explain your reasoning for your answers to question 8:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 6.1.

The

Deposit Guarantee Scheme Directive (DGSD)

aims to harmonise depositor protection within the European Union

and includes a definition of what constitutes a bank ‘deposit’. Beyond the qualification of some crypto-assets as ‘e-

money tokens’ and ‘security tokens’, the Commission seeks feedback from stakeholders on whether other crypto-

assets could be considered as a bank ‘deposit’ under EU law.

Question 9. Would you see any crypto-asset which is marketed and/or could

be considered as ‘deposit’ within the meaning of Article 2(3) DGSD?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

III. Crypto-assets that are not currently covered by

EU legislation

This section aims to seek views from stakeholders on the opportunities and challenges raised by crypto-assets that

providers related to crypto-assets and the best way to mitigate them (

). This section also raises horizontal questions

concerning market integrity, Anti-Money laundering (AML) and Combatting the Financing of Terrorism (CFT), consumer

/investor protection and the supervision and oversight of the crypto-assets sector (

currently fall outside the scope of EU financial services legislation

(

) and on the risks presented by some service

Those crypto-assets are currently unregulated at EU level, except those which qualify as ‘virtual currencies’ under the AML

/CFT framework (see section I.C. of this document).

A. General questions: Opportunities and challenges raised by crypto-

assets

Crypto-assets can bring about significant economic benefits in terms of efficiency improvements and enhanced system

resilience alike. Some of those crypto-assets are ‘payment tokens’ and include the so-called “stablecoins” (see below)

which hold the potential to bridge certain gaps in the traditional payment systems and can allow for more efficient and

cheaper transactions, as a result of fewer intermediaries being involved, especially for cross-border payments. ICOs

could be used as an alternative funding tool for new and innovative business models, products and services, while the

use of DLT could make the capital raising process more streamlined, faster and cheaper. DLT can also enable users to

‘tokenise” tangible assets (cars, real estate) and intangible assets (e.g. data, software, intellectual property rights, ...),

thus improving the liquidity and tradability of such assets. Crypto-assets also have the potential to widen access to new

and different investment opportunities for EU investors. The Commission is seeking feedback on the benefits that

crypto-assets could deliver.

Question 10. In your opinion, what is the importance of each of the potential

benefits related to crypto-assets listed below?

Please rate from 1 (not important at all) to 5 (very important)

Don’t

know /

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

(not

important

at all)

2 3 4

(very

important)

opinion

not

relevant

Issuance of utility tokens as a cheaper,

more efficient capital raising tool than IPOs

Issuance of utility tokens as an alternative

funding source for start-ups

Cheap, fast and swift payment instrument

Enhanced financial inclusion

Crypto-assets as a new investment

opportunity for investors

Improved transparency and traceability of

transactions

Enhanced innovation and competition

Improved liquidity and tradability of

tokenised ‘assets’

Enhanced operational resilience (including

cyber resilience)

Security and management of personal data

Possibility of using tokenisation to

coordinate social innovation or

decentralised governance

10.1 Is there any other potential benefits related to crypto-assets not

mentioned

above

that

you

would

foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

10.2 Please explain your reasoning for your answers to question 10:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Raising capital through issuance of utility tokens is fundamentally the same as rewardbased crowdfunding in

the vast majority of use-cases.

The cost of raising capital through the issuance of utility tokens is not that different from raising capital

through rewardbased crowdfunding that do not leverage blockchain through the issuance of tokenized proof

by issuing utility tokens.

Although, there is technological difference and especially in blockchainbased business models it would be

an unnecessary detour to leave the blockchainsphere to create a textbased proof of owed reward in e.g. a

mail. Oppositely, it would rarely be of any benefit for a non-blockchainbased company to issue a utility token

as mean of raising capital.

Despite the significant benefits of crypto assets, there are also important risks associated with them. For instance,

ESMA underlined the risks that the unregulated crypto-assets pose to investor protection and market integrity. It

features of crypto-assets (for instance their accessibility online or their pseudo-anonymous nature) can also be

attractive for tax evaders. More generally, the application of DLT might also pose challenges with respect to protection

of personal data and competition

. Some operational risks, including cyber risks, can also arise from the underlying

technology applied in crypto-asset transactions. In its advice, EBA also drew attention to the energy consumption

material risks to financial stability

, this might change in the future.

ESMA, “Advice on initial coin offerings and Crypto-Assets”

identified the most significant risks as fraud, cyber-attacks, money-laundering and market manipulation

. Certain

entailed in some crypto-asset activities. Finally, while the crypto-asset market is still small and currently pose no

January 2019.

For example when established market participants operate on private permission-based DLT, this could create entry barriers.

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors, Financial Stability Board

2018.

Question 11. In your opinion, what are the most important risks related to

crypto-assets?

Please rate from 1 (not important at all) to 5 (very important)

Don’t

(not

important at

all)

2 3 4

(very

important)

know /

opinion

not

relevant

Fraudulent activities

Market integrity (e.g. price, volume

manipulation, ...)

Investor/consumer protection

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Anti-money laundering and CFT issues

Data protection issues

Competition issues

Cyber security and operational risks

Taxation issues

Energy consumption entailed in crypto-

asset activities

Financial stability

Monetary sovereignty/monetary policy

transmission

11.1 Is there any other important risks related to crypto-assets not mentioned

above

that

you

would

foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

11.2 Please explain your reasoning for your answers to question 11:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

We rate the risks related to financial stability and monetary policy relatively low, since these factors mainly

relate to the network effects that can occur when a crypto-asset becomes widely adopted in the market. That

would happen if bigtechs or social media companies enter financial markets by introducing a means of

payment that can compete with currency issued by a central bank.

The risks related to Energy consumption is rated medium, due to the existence of different types of

consensus mechanisms which have very different energy consumption levels, and due the fact that the

technology is not fully matured yet and advances in energy consumption are expected in the (re)design of

(new) chains.

“Stablecoins” are a relatively new form of payment tokens whose price is meant to remain stable through time. Those

“stablecoins” are typically asset-backed by real assets or funds (such as short-term government bonds, fiat currency,

commodities, real estate, securities, ...) or by other crypto-assets. They can also take the form of algorithmic

“stablecoins” (with algorithm being used as a way to stabilise volatility in the value of the coin). While some of these

“stablecoins” can qualify as ‘financial instruments’ under MiFID II or as e-money under EMD2, others may fall outside

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

the scope of EU regulation. A

recent G7 report on ‘investigating the impact of global stablecoins’

analysed “stablecoins”

backed by a reserve of real assets or funds, some of which being sponsored by large technology or financial firms with

a large customer base. The report underlines that “stablecoins” that have the potential to reach a global scale (the so-

called “global stablecoins”) are likely to raise additional challenges in terms of financial stability, monetary policy

transmission and monetary sovereignty, among others. Users of “stablecoins” could in principle be exposed, among

others, to liquidity risk (it may take time to cash in such a “stablecoin”), counterparty credit risk (issuer may default) and

market risk (if assets held by issuer to back the “stablecoin” lose value).

Question 12. In our view, what are the benefits of ‘stablecoins’ and ‘global

s t a b l e c o i n s ’ ?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

There is no particular or bespoke benefit of stablecoins or GSCs. The benefits of stablecoins relate to the

evaluation of the societal benefits of decentralized business models. If the benefits are positively evaluated

then stablecoins are beneficial.

Question 13. In your opinion, what are the most important risks related to

“stablecoins”?

Please rate from 1 (factor not relevant at all) to 5 (very relevant factor)

Don’t

(factor

not

relevant

at all)

2 3 4

(very

relevant

factor)

know /

opinion

not

relevant

Fraudulent activities

Market integrity (e.g. price, volume

manipulation...)

Investor/consumer protection

Anti-money laundering and CFT issues

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Data protection issues

Competition issues

Cyber security and operational risks

Taxation issues

Energy consumption

Financial stability

Monetary sovereignty/monetary policy

transmission

13.1 Is there any other important risks related to “stablecoins” not mentioned

above

that

you

would

foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

We note some promise on stablecoins, but also potential risks, especially if these, or similar, projects reach

global scale. See below.

13.2 Please explain in your answer potential differences in terms of risks

between “stablecoins” and ‘global stablecoins’:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The above-mentioned risks connect to the different activities of crypto-assets, and not, as the question

suggests, the specific category of ´stablecoins´. Risk factors include the degree of decentralization, the

potential for mass adoption, the underlying type of blockchain, the underlying type of stabilization-

mechanism and so forth.

The Danish government finds that a risk assessment of crypto-assets should be based on the above-

mentioned factors rather than an arbitrary categorisation of certain subtypes of crypto-assets. See also

question 16.

It might be relevant not only to distinguish between "stablecoins" and "global

stablecoins", but also between "decentralized" stablecoins (e.g. MakerDAO) and centralised stablecoins (e.g

Tether, Libra).

Some EU Member States already regulate crypto-assets that fall outside the EU financial services legislation. The

following questions seek views from stakeholders to determine whether a bespoke regime on crypto-assets at EU level

could be conducive to a thriving crypto-asset market in Europe and on how to frame a proportionate and balanced

regulatory framework, in order support legal certainty and thus innovation while reducing the related key risks. To reap

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

the full benefits of crypto-assets, additional modifications of national legislation may be needed to ensure, for instance,

the enforceability of token transfers.

Question 14. In your view, would a bespoke regime for crypto-assets (that are

not currently covered by EU financial services legislation) enable a

sustainable crypto-asset ecosystem in the EU (that could otherwise not

emerge)?

Yes

Don’t know / no opinion / not relevant

14.1 Please explain your reasoning for your answer to question 14:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Depending on the type of regulation it could help legitimize crypto asset service providers. This could help

the creation of a healthy crypto asset ecosystem. But it is important to differentiate crypto assets that are

asset-like and crypto assets that are used as backend - or rails - for a service. Rails should not be regulated.

Question 15. What is your experience (if any) as regards national regimes on

c r y p t o - a s s e t s ?

Please indicate which measures in these national laws are, in your view, an

effective approach to crypto-assets regulation, which ones rather not.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

We strongly believe that supranational regulation is the only feasible way to regulate crypto-assets, since the

phenomenon in its nature cuts across borders.

In Denmark, as well as the rest of the EU, payment institutions have the right to create and access a

payment account with a bank that can be used to carry out transactions. This rule is implemented in Section

63 of the Danish Payment Act. Payment institutions' access to a payment account is a prerequisite for

operators to offer their services, as their business consists of transferring money from a customer's account

to a business account. Through its oversight, the Danish Competition and Consumer Authority has seen

examples where banks,

allegedly to minimize the risk of money laundering and terrorist financing, state as a reason for a refusal

under section 63 of the Payment Act that they do not want to enter into customer relationships with payment

institutions that have customers whose business is related to crypto assets.

A regulation of crypto assets can [perhaps] help ensure that banks can clarify their concerns about money

laundering and terrorist financing in relation to crypto assets. As a result, fewer payment institutions may be

denied the creation of a payment account on the grounds that there is a risk of money laundering and

terrorist financing associated with making payments on behalf of companies whose business is related to

crypto assets.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 16. In your view, how would it be possible to ensure that a bespoke

regime for crypto-assets and crypto-asset service providers is proportionate

to induce innovation, while protecting users of crypto-assets?

Please indicate if such a bespoke regime should include the above-

mentioned categories (payment, investment and utility tokens) or exclude

some of them, given their specific features (e.g. utility tokens).

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As stated in our response to question 13; categorization of crypto-assets in subgroups such as ‘payment’,

‘investment’ and ‘utility tokens’, serve well to create a basis of understanding for probable use-cases for a

given token, but it is not well suited for regulatory purposes, as it does not consider, in a regulatory context,

important features of the token, such as:

•

type of blockchain

degree of decentralization

hybrid functionality

underlying mechanism (stabilization mechanisms, creation of subassets through mining, minting etc.)

These deciding factors and their complexity are not met by simple regulatory taxonomy.

Question 17. Do you think that the use of crypto-assets in the EU would be

facilitated by greater clarity as to the prudential treatment of financial

institutions’

exposures

crypto-assets

(See the discussion paper of the Basel Committee on Banking Supervision

(BCBS))?

Yes

Don’t know / no opinion / not relevant

If you answered yes to question 17, please indicate how this clarity should be

provided (guidance, EU legislation, ...):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A combination of regulatory and supervisory guidance and EU legislation.

17.1 Please explain your reasoning for your answer to question 17:

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

17.1 Please explain your reasoning for your answer to question 17:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It stands to reason that clarity regarding the prudential treatment of crypto assets would facilitate the use

hereof in the financial sector, in part because it could provide institutions with clear legal boundaries within

which to operate and assess the relevant risks, thereby decreasing litigation and conduct risk etc.

Such clarity would necessarily need to be provided through appropriate legislation at the EU level, however,

the fast changing nature of crypto assets and the like along with the often time consuming nature of

amending existing regulation highlights the need for appropriate guidelines on the treatment of crypto assets

within different areas of legislation as well as bespoke legislation.

Question 18. Should harmonisation of national civil laws be considered to

provide clarity on the legal validity of token transfers and the tokenisation of

tangible (material) assets?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

B. Specific questions on service providers related to crypto-assets

The crypto-asset market encompasses a range of activities and different market actors that provide trading and/or

intermediation services. Currently, many of these activities and service providers are not subject to any regulatory

framework, either at EU level (except for AML/CFT purposes) or national level. Regulation may be necessary in order

to provide clear conditions governing the provisions of these services and address the related risks in an effective and

proportionate manner. This would enable the development of a sustainable crypto-asset framework. This could be done

by bringing these activities and service providers in the regulated space by creating a new bespoke regulatory

approach.

Question 19. Can you indicate the various types and the number of service

providers related to crypto-assets (issuances of crypto-assets, exchanges,

trading platforms, wallet providers, ...) in your jurisdiction?

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Exchange service providers between fiat and VA: app. 10.

Custodian wallet providers: 2.

Exchange service providers between VC and VA: 1.

Providers of collateral debt positions: 1.

Issuers of VC: app. 5.

Decentralized trading platforms: 1.

1. Issuance of crypto-assets

This section distinguishes between the issuers of crypto-assets in general (1.1.) and the issuer of the so-called

“stablecoins” backed by a reserve of real assets (1.2.).

1.1. Issuance of crypto-assets in general

The crypto-asset issuer or sponsor is the organisation that has typically developed the technical specifications of a

crypto-asset and set its features. In some cases, their identity is known, while in some cases, those promoters are

unidentified. Some remain involved in maintaining and improving the crypto-asset’s code and underlying algorithm

while other do not (study from the European Parliament on “Cryptocurrencies and Blockchain”, July 2018).

Furthermore, the issuance of crypto-assets is generally accompanied with a document describing crypto-asset and the

ecosystem around it, the so-called ‘white papers’. Those ‘white papers’ are, however, not standardised and the quality,

the transparency and disclosure of risks vary greatly. It is therefore uncertain whether investors or consumers who buy

crypto-assets understand the nature of the crypto-assets, the rights associated with them and the risks they present.

Question 20. Do you consider that the issuer or sponsor of crypto-assets

marketed to EU investors/consumers should be established or have a

physical presence in the EU?

Yes

Don’t know / no opinion / not relevant

20.1 Please explain your reasoning for your answer to question 20:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In order to create level playing field among EU- and non-EU issuers or sponsors of crypto-assets all issuers

or sponsors of crypto-assets should be established or have a physical presence in the EU in order to market

its crypto-assets to EU investors/consumers.

It is unclear how this would be enforced for fully decentralized crypto assets.

Question 21. Should an issuer or a sponsor of crypto-assets be required to

provide information (e.g. through a ‘white paper’) when issuing crypto-

assets?

Yes

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Yes

This depends on the nature of the crypto-asset (utility token, payment token,

hybrid token, ...)

Don’t know / no opinion / not relevant

Question 21.1 Please indicate the entity that, in your view, should be

responsible for this disclosure (e.g. the issuer/sponsor, the entity placing the

crypto-assets in the market) and the content of such information (e.g.

information on the crypto-asset issuer, the project, the rights attached to the

crypto-assets, on the secondary trading, the underlying technology, potential

conflicts of interest, ...):

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Question 22. If a requirement to provide the information on the offers of

crypto-assets is imposed on their issuer/sponsor, would you see a need to

clarify the interaction with existing pieces of legislation that lay down

information requirements (to the extent that those rules apply to the offers of

certain crypto-assets, such as utility and/or payment tokens)?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

The

Consumer Rights Directive

The

E-Commerce Directive

The

EU Distance Marketing of

Consumer Financial Services Directive

22.1 Is there any other existing piece of legislation laying down information

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

22.1 Is there any other existing piece of legislation laying down information

requirements with which the interaction would need to be clarified?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No.

22.2 Please explain your reasoning and indicate the type of clarification

(legislative/non legislative) that would be required:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Question 23. Beyond any potential obligation as regards the mandatory

incorporation and the disclosure of information on the offer, should the

crypto-asset issuer or sponsor be subject to other requirements?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

The managers of the issuer or sponsor

should be subject to fitness and probity

standards

The issuer or sponsor should be subject

to advertising rules to avoid misleading

marketing/promotions

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Where necessary, the issuer or sponsor

should put in place a mechanism to

safeguard the funds collected such as an

escrow account or trust account

23.1 Is there any other requirement not mentioned above to which the crypto-

asset

issuer

should

subject?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As crypto assets as a concept covers everything from financial instruments, monetary value, any given right

or contractual agreement, it is not possible to create generalised requirements for the issuers.

23.2 Please explain your reasoning for your answers to question 23:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

1.2. Issuance of “stablecoins” backed by real assets

As indicated above, a new subset of crypto-assets – the so-called “stablecoins” – has recently emerged and present

some opportunities in terms of cheap, faster and more efficient payments. A recent G7 report makes a distinction

between “stablecoins” and “global stablecoins”. While “stablecoins” share many features of crypto-assets, the so-called

“global stablecoins” (built on existing large and cross-border customer base) could scale rapidly, which could lead to

additional risks in terms of financial stability, monetary policy transmission and monetary sovereignty. As a

consequence, this section of the public consultation aims to determine whether additional requirements should be

imposed on both “stablecoin” and “global stablecoin” issuers when their coins are backed by real assets or funds. The

reserve (i.e. the pool of assets put aside by the issuer to stabilise the value of a “stablecoin”) may be subject to risks.

For instance, the funds of the reserve may be invested in assets that may prove to be riskier or less liquid than

expected in stressed market circumstances. If the number of “stablecoins” is issued above the funds held in the

reserve, this could lead to a run (a large number of users converting their “stablecoins” into fiat currency).

Question 24. In your opinion, what would be the objective criteria allowing for

a distinction between “stablecoins” and “global stablecoins” (e.g. number

and value of “stablecoins” in circulation, size of the reserve, ...)?

Please explain your reasoning.

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

We generally disagree with the use of the term ‘stablecoin’ or ‘global stablecoin’. The term ‘stable’ sends a

wrong message to consumers and other users that these crypto assets are better or more safe than other

assets (crypto or real). We would thus prefer to avoid the use of the term ‘stablecoins’ and instead focus on

the activities being carried out and degree of centralization, as described in our answers above.

Certain examples of so-called ‘stable coins’ have to a large degree driven the discussion on the regulation of

crypto assets. We believe that it is important to ensure that a future common EU-regulation is not driven by

specific examples of a so-called ‘stable coin’, but rather by the nature of the activities being carried out.

So-called ‘stablecoins” or ‘global stablecoins’ are to a large degree comparable to e-money and payment

services in the need that they aim to address and service for European consumers and businesses. In that

regard regulation should be devised to address the same risks, especially regarding consumer protection

and financial stability, including adequate safeguarding/reserve requirements. It should take the degree of

centralization into account, as it could be difficult to establish safeguarding/reserve requirements for truly

decentralized crypto assets. However, there is a need to ensure that these requirements do not get

prohibitive for future innovation. It could therefore be considered to apply proportionality in terms of the

expected use of the so-called ‘stablecoin’.

Question 25.1 To tackle the specific risks created by “stablecoins” and

“global stablecoins”, what are the requirements that could be imposed on

their

issuers

and/or

the

manager

the

reserve?

Please indicate for “

stablecoins

” if each is proposal is relevant.

Don’t

Relevant

Not

relevant

know /

opinion

The reserve of assets should only be invested in safe and liquid

assets (such as fiat-currency, short term-government bonds, ...)

The issuer should contain the creation of “stablecoins” so that it

is always lower or equal to the value of the funds of the reserve

The assets or funds of the reserve should be segregated from

the issuer’s balance sheet

The assets of the reserve should not be encumbered (i.e. not

pledged as collateral)

The issuer of the reserve should be subject to prudential

requirements rules (including capital requirements)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

The issuer and the reserve should be subject to specific

requirements in case of insolvency or when it decides to stop

operating

Obligation for the assets or funds to be held in custody with

credit institutions in the EU

Periodic independent auditing of the assets or funds held in the

reserve

The issuer should disclose information to the users on (i) how it

intends to provide stability to the “stablecoins”, (ii) on the claim

(or the absence of claim) that users may have on the reserve,

(iii) on the underlying assets or funds placed in the reserve

The value of the funds or assets held in the reserve and the

number of stablecoins should be disclosed periodically

Requirements to ensure interoperability across different

distributed ledgers or enable access to the technical standards

used by the issuer

Question 25.1 To tackle the specific risks created by “stablecoins” and

“global stablecoins”, what are the requirements that could be imposed on

their

issuers

and/or

the

manager

the

reserve?

Please indicate for “

stablecoins

” if each is proposal is relevant.

Don’t

Relevant

Not

relevant

know /

opinion

The reserve of assets should only be invested in safe and liquid

assets (such as fiat-currency, short term-government bonds, ...)

The issuer should contain the creation of “stablecoins” so that it

is always lower or equal to the value of the funds of the reserve

The assets or funds of the reserve should be segregated from

the issuer’s balance sheet

The assets of the reserve should not be encumbered (i.e. not

pledged as collateral)

The issuer of the reserve should be subject to prudential

requirements rules (including capital requirements)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

The issuer and the reserve should be subject to specific

requirements in case of insolvency or when it decides to stop

operating

Obligation for the assets or funds to be held in custody with

credit institutions in the EU

Obligation for the assets or funds to be held for safekeeping at

the central bank

Periodic independent auditing of the assets or funds held in the

reserve

The issuer should disclose information to the users on (i) how it

intends to provide stability to the “stablecoins”, (ii) on the claim

(or the absence of claim) that users may have on the reserve,

(iii) on the underlying assets or funds placed in the reserve

The value of the funds or assets held in the reserve and the

number of stablecoins should be disclosed periodically

Obligation for the issuer to use open source standards to

promote competition

25.1 a) Is there any other requirements not mentioned above that could be

imposed on “stablecoins” issuers and/or the manager of the reserve?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 24.

25.1 b) Please Please illustrate your responses to question 25.1:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 25.2 To tackle the specific risks created by “stablecoins” and

“global stablecoins”, what are the requirements that could be imposed on

their

issuers

and/or

the

manager

the

reserve?

Please indicate for “

global

stablecoins

” if each is proposal is relevant.

Don’t

Relevant

Not

relevant

know /

opinion

The reserve of assets should only be invested in safe and liquid

assets (such as fiat-currency, short term-government bonds, ...)

The issuer should contain the creation of “stablecoins” so that it

is always lower or equal to the value of the funds of the reserve

The assets or funds of the reserve should be segregated from

the issuer’s balance sheet

The assets of the reserve should not be encumbered (i.e. not

pledged as collateral)

The issuer of the reserve should be subject to prudential

requirements rules (including capital requirements)

The issuer and the reserve should be subject to specific

requirements in case of insolvency or when it decides to stop

operating

Obligation for the assets or funds to be held in custody with

credit institutions in the EU

Periodic independent auditing of the assets or funds held in the

reserve

The issuer should disclose information to the users on (i) how it

intends to provide stability to the “stablecoins”, (ii) on the claim

(or the absence of claim) that users may have on the reserve,

(iii) on the underlying assets or funds placed in the reserve

The value of the funds or assets held in the reserve and the

number of stablecoins should be disclosed periodically

25.2 a) Is there any other requirements not mentioned above that could be

imposed on “stablecoins” issuers and/or the manager of the reserve?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 24.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

25.2 b) Please Please illustrate your responses to question 25.2:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 24.

“Stablecoins” could be used by anyone (retail or general purpose) or only by a limited set of actors, i.e. financial

institutions or selected clients of financial institutions (wholesale). The scope of uptake may give rise to different risks.

The

G7 report on “investigating the impact of global stablecoins”

stresses that “

Retail stablecoins, given their public

nature, likely use for high-volume, small-value payments and potentially high adoption rate, may give rise to different

risks than wholesale stablecoins available to a restricted group of users

”.

Question 26. Do you consider that wholesale “stablecoins” (those limited to

financial institutions or selected clients of financial institutions, as opposed

to retail investors or consumers) should receive a different regulatory

treatment than retail “stablecoins”?

Yes

Don’t know / no opinion / not relevant

26.1 Please explain your reasoning for your answer to question 26:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See answer to question 24.

2. Trading platforms

Trading platforms function as a market place bringing together different crypto-asset users that are either looking to buy

or sell crypto-assets. Trading platforms match buyers and sellers directly or through an intermediary. The business

model, the range of services offered and the level of sophistication vary across platforms. Some platforms, so-called

‘centralised platforms’, hold crypto-assets on behalf of their clients while others, so-called decentralised platforms, do

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

not. Another important distinction between centralised and decentralised platforms is that trade settlement typically

occurs on the books of the platform (off-chain) in the case of centralised platforms, while it occurs on DLT for

decentralised platforms (on-chain). Some platforms have already adopted good practice from traditional securities

trading venues

while others use simple and inexpensive technology.

Trading venues are a regulated market, a multilateral trading facility or an organised trading facility under MiFID II

Question 27. In your opinion and beyond market integrity risks (see section

III. C. 1. below), what are the main risks in relation to trading platforms of

crypto-assets?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Absence of accountable entity in the EU

Lack of adequate governance

arrangements, including operational

resilience and ICT security

Absence or inadequate segregation of

assets held on the behalf of clients (e.g.

for ‘centralised platforms’)

Conflicts of interest arising from other

activities

Absence/inadequate recordkeeping of

transactions

Absence/inadequate complaints or

redress procedures are in place

Bankruptcy of the trading platform

Lacks of resources to effectively conduct

its activities

Losses of users’ crypto-assets through

theft or hacking (cyber risks)

Lack of procedures to ensure fair and

orderly trading

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Access to the trading platform is not

provided in an undiscriminating way

Delays in the processing of transactions

For centralised platforms: Transaction

settlement happens in the book of the

platform and not necessarily recorded on

DLT. In those cases, confirmation that the

transfer of ownership is complete lies with

the platform only (counterparty risk for

investors vis-à-vis the platform)

Lack of rules, surveillance and

enforcement mechanisms to deter

potential market abuse

27.1 Is there any other main risks posed by trading platforms of crypto-

assets

not

mentioned

above

that

you

would

foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

27.2 Please explain your reasoning for your answer to question 27:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 28. What are the requirements that could be imposed on trading

platforms in order to mitigate those risks?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

(completely

irrelevant)

2 3 4

(highly

relevant)

Don’t

know /

opinion

not

relevant

Trading platforms should have a physical

presence in the EU

Trading platforms should be subject to

governance arrangements (e.g. in terms

of operational resilience and ICT security)

Trading platforms should segregate the

assets of users from those held on own

account

Trading platforms should be subject to

rules on conflicts of interest

Trading platforms should be required to

keep appropriate records of users’

transactions

Trading platforms should have an

adequate complaints handling and

redress procedures

Trading platforms should be subject to

prudential requirements (including capital

requirements)

Trading platforms should have adequate

rules to ensure fair and orderly trading

Trading platforms should provide access

to its services in an undiscriminating way

Trading platforms should have adequate

rules, surveillance and enforcement

mechanisms to deter potential market

abuse

Trading platforms should be subject to

reporting requirements (beyond AML/CFT

requirements)

Trading platforms should be responsible

for screening crypto-assets against the

risk of fraud

28.1 Is there any other requirement that could be imposed on trading

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

28.1 Is there any other requirement that could be imposed on trading

platforms

order

mitigate

those

risks?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

28.2 Please indicate if those requirements should be different depending on

the type of crypto-assets traded on the platform and explain your reasoning

for your answers to question 28:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

3. Exchanges (fiat-to-crypto and crypto-to-crypto)

Crypto-asset exchanges are entities that offer exchange services to crypto-asset users, usually against payment of a

certain fee (i.e. a commission). By providing broker/dealer services, they allow users to sell their crypto-assets for fiat

currency or buy new crypto-assets with fiat currency. It is important to note that some exchanges are pure crypto-to-

crypto exchanges, which means that they only accept payments in other crypto-assets (for instance, Bitcoin). It should

also be noted that many cryptocurrency exchanges (i.e. both fiat-to-crypto and crypto-to-crypto exchanges) operate as

custodial wallet providers (see section III.B.4 below). Many exchanges usually function both as a trading platform and

as a form of exchange (study from the European Parliament on “Cryptocurrencies and Blockchain”, July 2018).

Question 29. In your opinion, what are the main risks in relation to crypto-to-

crypto and fiat–to-crypto exchanges?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

know /

(completely

irrelevant)

2 3 4

(highly

relevant)

opinion

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

not

relevant

Absence of accountable entity in the EU

Lack of adequate governance

arrangements, including operational

resilience and ICT security

Conflicts of interest arising from other

activities

Absence/inadequate recordkeeping of

transactions

Absence/inadequate complaints or

redress procedures are in place

Bankruptcy of the exchange

Inadequate own funds to repay the

consumers

Losses of users’ crypto-assets through

theft or hacking

Users suffer loss when the exchange they

interact with does not exchange crypto-

assets against fiat currency (conversion

risk)

Absence of transparent information on the

crypto-assets proposed for exchange

29.1 Is there any other main risks in relation to crypto-to-crypto and fiat–to-

crypto exchanges not mentioned above that you would foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

There is a very big difference on crypto-to-fiat and crypto-to-crypto exchanges. Crypto-to-crypto exchanges

can make a large reduction on counter party risk to the exchange, if the trades are conducted by the use of a

smart-contract. This means there is no or very little risk for hacking, however, the consequences might be

big. The is also little or no risk, for the customers in case of bankruptcy when smart contracts are used.

However, the risks are then moved to a technical level, which can be audited by regulators, customers etc.

(fully transparent on the blockchains). The risk of hacking might be mitigated by applying technical audits of

the code and requiring cold storage (or similar), when possible.

29.2 Please explain your reasoning for your answer to question 29:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

There is a very large difference in the listed risks depending on the type of exchange – crypto to crypto or fiat

to crypto. The questions does not fit to be shared for both types of exchanges, so the answers are given by

having with risks associated with both companies/business models in mind.

Question 30. What are the requirements that could be imposed on exchanges

in order to mitigate those risks?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Absence of accountable entity in the EU

Exchanges should be subject to

governance arrangements (e.g. in terms

of operational resilience and ICT security)

Exchanges should segregate the assets

of users from those held on own account

Exchanges should be subject to rules on

conflicts of interest

Exchanges should be required to keep

appropriate records of users’ transactions

Exchanges should have an adequate

complaints handling and redress

procedures

Exchanges should be subject to

prudential requirements (including capital

requirements)

Exchanges should be subject to

advertising rules to avoid misleading

marketing/promotions

Exchanges should be subject to reporting

requirements (beyond AML/CFT

requirements)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Exchanges should be responsible for

screening crypto-assets against the risk of

fraud

30.1 Is there any other requirement that could be imposed exchanges in

order

mitigate

those

risks?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It could be required for the the crypto-to-crypto exchanges to publish the code/smart contract to the

regulators, to conduct audits or require it to be open source (this is maybe taking it too far). It could be

required from the fiat to crypto exchanges to use multisig (the digital signature of several employees as a

requirement to conduct certain activities), if the company has a certain size (many employees).

The crypto to fiat exchanges can also be required to keep a certain amount of the virtual currency they store

in cold storage (away from hackers).

30.2 Please indicate if those requirements should be different depending on

the type of crypto-assets available on the exchange and explain your

reasoning for your answers to question 30:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Again, it is very important to differentiate between crypto exchanges holding funds and crypto exchanges not

holding funds (by the use of smart contracts), the risks are different. Requiring the exchanges to publish their

code to the FSA/relevant regulator may only be needed for crypto to crypto exchanges.

4. Provision of custodial wallet services for crypto-assets

Crypto-asset wallets are used to store public and private keys

and to interact with DLT to allow users to send and

receive crypto-assets and monitor their balances. Crypto-asset wallets come in different forms. Some support multiple

crypto-assets/DLTs while others are crypto-asset/DLT specific

. DLT networks generally provide their own wallet

functions (e.g. Bitcoin or Ether).

There are also specialised wallet providers. Some wallet providers, so-called custodial wallet providers, not only

provide wallets to their clients but also hold their crypto-assets (i.e. their private keys) on their behalf. They can also

provide an overview of the customers’ transactions. Different risks can arise from the provision of such a service.

DLT is built upon a cryptography system that uses pairs of keys: public keys, which are publicly known and essential for

identification, and private keys, which are kept secret and are used for authentication and encryption.

There are software/hardware wallets and so-called cold/hot wallets. A software wallet is an application that may be installed

locally (on a computer or a smart phone) or run in the cloud. A hardware wallet is a physical device, such as a USB key. Hot

wallets are connected to the internet while cold wallets are not.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 31. In your opinion, what are the main risks in relation to the

custodial wallet service provision?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

No physical presence in the EU

Lack of adequate governance

arrangements, including operational

resilience and ICT security

Absence or inadequate segregation of

assets held on the behalf of clients

Conflicts of interest arising from other

activities (trading, exchange)

Absence/inadequate recordkeeping of

holdings and transactions made on behalf

of users

Absence/inadequate complaints or

redress procedures are in place

Bankruptcy of the custodial wallet provider

Inadequate own funds to repay the

consumers

Losses of users’ crypto-assets/private

keys (e.g. through wallet theft or hacking)

The custodial wallet is compromised or

fails to provide expected functionality

The custodial wallet provider behaves

negligently or fraudulently

No contractual binding terms and

provisions with the user who holds the

wallet

31.1 Is there any other risk in relation to the custodial wallet service provision

not

mentioned

above

that

you

would

foresee?

Please specify which one(s) and explain your reasoning:

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The risks associated with custodial wallet providers are covered in the above listed questions.

31.2 Please explain your reasoning for your answer to question 31:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 32. What are the requirements that could be imposed on custodial

wallet providers in order to mitigate those risks?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Custodial wallet providers should have a

physical presence in the EU

Custodial wallet providers should be

subject to governance arrangements (e.g.

in terms of operational resilience and ICT

security)

Custodial wallet providers should

segregate the asset of users from those

held on own account

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Custodial wallet providers should be

subject to rules on conflicts of interest

Custodial wallet providers should be

required to keep appropriate records of

users’ holdings and transactions

Custodial wallet providers should have an

adequate complaints handling and

redress procedures

Custodial wallet providers should be

subject to capital requirements

Custodial wallet providers should be

subject to advertising rules to avoid

misleading marketing/promotions

Custodial wallet providers should be

subject to certain minimum conditions for

their contractual relationship with the

consumers/investors

32.1 Is there any other requirement that could be imposed on custodial wallet

providers

order

mitigate

those

risks?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A requirement of multisig (the digital signature of additional employees in the company, avoiding one person

to make big decisions alone)

32.2 Please indicate if those requirements should be different depending on

the type of crypto-assets kept in custody by the custodial wallet provider and

explain your reasoning for your answer to question 32:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It is the same. It is not the assets that make the difference, but the way it is stored, as this includes counter

party risk. Holding privacy coins may, however, cause extra AML-risks, which must be addressed by the

company in its risk assessment, policy, SOP’s etc. The AML-legislation is sufficient in this sense.

Question 33. Should custodial wallet providers be authorised to ensure the

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 33. Should custodial wallet providers be authorised to ensure the

custody of all crypto-assets, including those that qualify as financial

instruments under MiFID II (the so-called ‘security tokens’, see section IV of

the public consultation) and those currently falling outside the scope of EU

legislation?

Yes

Don’t know / no opinion / not relevant

33.1 Please explain your reasoning for your answer to question 33:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

To ensure consumer protection, there is less risk for the user to lose his or her key.

To ensure transparence, the regulators know, where the tokens are stored, if it is banned, the tokens will be

stored privately in non-custodial wallets.

To ensure liquidity, it will be a limitation of the technological opportunities the blockchain technology brings.

Question 34. In your opinion, are there certain business models or activities

/services in relation to digital wallets (beyond custodial wallet providers) that

should be in the regulated space?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

VASP’s that offer financial services, as we know them, are covered elsewhere in the legislation. If a VASP

offers lottery-activities, have sufficient legislation for that. If a VASP offers remittance, we have sufficient

legislation for that etc.

5. Other services providers

Beyond custodial wallet providers, exchanges and trading platforms, other actors play a particular role in the crypto-

asset ecosystem. Some bespoke national regimes on crypto-currency regulate (either on an optional or mandatory

basis) other crypto-assets related services, sometimes taking examples of the investment services listed in Annex I of

MiFID II. The following section aims at assessing whether some requirements should be required for other services.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 35. In your view, what are the services related to crypto-assets that

should

subject

requirements?

(When referring to execution of orders on behalf of clients, portfolio

management, investment advice, underwriting on a firm commitment basis,

placing on a firm commitment basis, placing without firm commitment basis,

we consider services that are similar to those regulated by Annex I A of

MiFID II.)

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Reception and transmission of orders in

relation to crypto-assets

Execution of orders on crypto-assets on

behalf of clients

Crypto-assets portfolio management

Advice on the acquisition of crypto-assets

Underwriting of crypto-assets on a firm

commitment basis

Placing crypto-assets on a firm

commitment basis

Placing crypto-assets without a firm

commitment basis

Information services (an information

provider can make available information

on exchange rates, news feeds and other

data related to crypto-assets)

Processing services, also known as

‘mining’ or ‘validating’ services in a DLT

environment (e.g. ‘miners’ or validating

‘nodes’ constantly work on verifying and

confirming transactions)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Distribution of crypto-assets (some crypto-

assets arrangements rely on designated

dealers or authorised resellers)

Services provided by developers that are

responsible for maintaining/updating the

underlying protocol

Agent of an issuer (acting as liaison

between the issuer and to ensure that the

regulatory requirements are complied with)

35.1 Is there any other services related to crypto-assets not mentioned above

that

should

subject

requirements?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

35.2 Please illustrate your response to question 35 by underlining the

potential risks raised by these services if they were left unregulated and by

identifying potential requirements for those service providers:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Crypto-asset resembles financial instrument in many ways and in other ways not at all. Due to the digital and

dematerialized nature of crypto-assets the MiFID II-rules can prove difficult to apply. Further supervisors can

have difficulties to impose sanctions, as the supervisor might not know whom to address the rules and

sanctions to due to the cyper nature of the crypto-assets.

Accordingly, the Danish government finds that a bespoke regime for crypto-assets should be developed.

Such a regime should be technology neutral and ensure that new technologies such as DLT can be applied

in the financial sector in a way that balance consideration to innovation and growth as well as investor

/consumer protection, orderly markets and financial stability.

Further, the regulation must ensure level playing field among traditional providers of financial services and

providers of financial services using new technology such as DLT. The regulation must account for the

multiple risks connected to crypto-assets investments. This includes among others the risk of money

laundering and investor/consumer protection. Special consideration should also be given to the cross-border

nature of crypto-assets.

However a bespoke regime should only cover the features of crypto- assets that are currently known, and

regulatory feasible to supervise for the competent authorities.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Crypto-assets are offered on the internet and are as such cross-border in nature. Therefore, the Danish

government finds that the regulation of crypto-assets should be set out on at least EU-level.

Crypto-assets are not banknotes, coins or scriptural money. For this reason, crypto-assets do not fall within the

definition of ‘funds’ set out in the

Payment Services Directive (PSD2)

, unless they qualify as electronic money. As a

consequence, if a firm proposes a payment service related to a crypto-asset (that do not qualify as e-money), it would

fall outside the scope of PSD2.

Question 36. Should the activity of making payment transactions with crypto-

assets (those which do not qualify as e-money) be subject to the same or

equivalent rules as those currently contained in PSD2?

Yes

Don’t know / no opinion / not relevant

36.1 Please explain your reasoning for your answer to question 36:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Generally, payment transactions require a transfer of funds. In cases where a crypto-asset transaction has

the intent and purpose of transferring funds; level playing field should be secured by subjecting the

transaction to equivalent rules as traditional payment transactions. In these cases, the crypto-asset

transaction should be regarded as a technological mean to make a transaction of funds as we know it.

C. Horizontal questions

Those horizontal questions relate to four different topics: Market integrity (1.), AML/CFT (2.), consumer protection (3.)

and the supervision and oversight of the various service providers related to crypto-assets (4).

1. Market Integrity

Many crypto-assets exhibit high price and volume volatility while lacking the transparency and supervision and

oversight present in other financial markets. This may heighten the potential risk of market manipulation and insider

dealing on exchanges and trading platforms. These issues can be further exacerbated by trading platforms not having

adequate systems and controls to ensure fair and orderly trading and protect against market manipulation and insider

dealing. Finally there may be a lack of information about the identity of participants and their trading activity in some

crypto-assets.

Question 37. In your opinion, what are the biggest market integrity risks

related to the trading of crypto-assets?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Price manipulation

Volume manipulation (wash trades…)

Pump and dump schemes

Manipulation on basis of quoting and

cancellations

Dissemination of misleading information

by the crypto-asset issuer or any other

market participants

Insider dealings

37.1 Is there any other big market integrity risk related to the trading of

crypto-assets not mentioned above that you would foresee?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

37.2 Please explain your reasoning for your answer to question 37:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

While market integrity is the key foundation to create consumers’ confidence in the crypto-assets market, the extension

of the

Market Abuse Regulation (MAR)

requirements to the crypto-asset ecosystem could unduly restrict the

development of this sector.

Question 38. In your view, how should market integrity on crypto-asset

markets be ensured?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Market integrity should either be ensured trough a classical “catch-all”-provision, that qualifies security

tokens as financial instruments and consequently enables the existing rules on market abuse etc. to be

applicable or efforts should be made to ensure a tailor-made regime to apply to crypto-assets.

While the information on executed transactions and/or current balance of wallets are often openly accessible in

distributed ledger based crypto-assets, there is currently no binding requirement at EU level that would allow EU

supervisors to directly identify the transacting counterparties (i.e. the identity of the legal or natural person(s) who

engaged in the transaction).

Question 39. Do you see the need for supervisors to be able to formally

identify the parties to transactions in crypto-assets?

Yes

Don’t know / no opinion / not relevant

39.1 Please explain your reasoning for your answer to question 39:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

This would depend on the general risk assessment of the current market. If a sound and functional market

abuse regime should apply to the trading of crypto assets, supervisors should in general be able to identify

the underlying parties to a transaction in order to conduct effective supervision and in order to investigate

potential market abuse. In practice, this would be ensured through existing regimes, i.e. trading records and

reporting requirements to trade repositories.

Question 40. Provided that there are new legislative requirements to ensure

the proper identification of transacting parties in crypto-assets, how can it be

ensured that these requirements are not circumvented by trading on

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

ensured that these requirements are not circumvented by trading on

platforms/exchanges in third countries?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

By securing adequate supervisory powers in respect of supervision, conduct rules, registration procedures

etc. Legislative measures could also be taken to ensure fit & proper requirements, capital requirements or

the like.

2. Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CFT)

Under the current EU anti-money laundering and countering the financing of terrorism (AML/CFT) legal framework (Anti-

Money Laundering Directive (Directive 2015/849/EU)

as amended by

AMLD5 (Directive 2018/843/EU)

), providers of

services (wallet providers and crypto-to-fiat exchanges) related to “virtual currency” are “obliged entities”. A virtual

currency is defined as: “

a digital representation of value that is neither issued by a central bank or a public authority, nor

necessarily attached to a fiat currency, but is accepted by natural or legal persons as a means of payment and can be

and defines it as: “a digital representation of value that can be digitally traded or transferred, and can be used for

payment or investment purposes, and that does not include digital representations of fiat currencies, securities and

transferred, stored or traded electronically”. The Financial Action Task Force (FATF) uses a broader term “virtual asset”

other financial assets that are already covered elsewhere in the FATF Recommendations

”. Therefore, there may be a

need to align the definition used in the EU AML/CFT framework with the FATF recommendation or with a “crypto-asset”

definition, especially if a crypto-asset framework was needed.

Question 41. Do you consider it appropriate to extend the existing “virtual

currency” definition in the EU AML/CFT legal framework in order to align it

with a broader definition (as the one provided by the FATF or as the

definition of “crypto-assets” that could be used in a potential bespoke

regulation on crypto-assets)?

Yes

Don’t know / no opinion / not relevant

41.1 Please explain your reasoning for your answer to question 41:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In order to not regulate the same currency, service or instrument twice, it makes sense to look at the

purpose instead of a narrow definition. Example: Tether issues a 'stablecoin' (virtual asset) backed by US

dollars and pegged to the USD, it is named USD Tether. If Tether moved their company to Denmark, we

would most likely consider the USD Tether to be e-money and not a virtual asset.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Some crypto-asset services are currently covered in internationally recognised recommendations without being covered

under EU law, such as the provisions of exchange services between different types of crypto-assets (crypto-to-crypto

exchanges) or the “

participation in and provision of financial services related to an issuer”s offer and/or sale of virtual

assets

”. In addition, possible gaps may exist with regard to peer-to-peer transactions between private persons not

acting as a business, in particular when done through wallets that are not hosted by custodial wallet providers.

Question 42. Beyond fiat-to-crypto exchanges and wallet providers that are

currently covered by the EU AML/CFT framework, are there crypto-asset

services that should also be added to the EU AML/CFT legal framework

obligations?

Yes

Don’t know / no opinion / not relevant

If you think there are crypto-asset services that should also be added to the

EU AML/CFT legal framework obligations, describe the possible risks to

tackle:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Exchanges offering to exchange one kind of crypto asset to another kind of crypto asset.

42.1 Please explain your reasoning for your answer to question 42:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The use of crypto-to-crypto exchanges are reducing imbedded transparency of many crypto assets making it

harder for the FIU’s to trace the transaction.

Question 43. If a bespoke framework on crypto-assets is needed, do you

consider that all crypto-asset service providers covered by this potential

framework should become ‘obliged entities’ under the EU AML/CFT

framework?

Yes

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Don’t know / no opinion / not relevant

43.1 Please explain your reasoning for your answer to question 43:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Many crypto-asset service providers will compete with existing (non-crypto) service providers. The existing

service providers are covered by a sufficient EU AML/CFT framework, e.g. remittance services, loan

activities etc. This legislation will apply to the crypto-asset service providers, as it is the activity that is

covered, not the technology used as rails.

Question 44. In your view, how should the AML/CFT risks arising from peer-

to-peer transactions (i.e. transactions without intermediation of a service

provider) be mitigated?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Make sure all exchanging activities from crypto-assets to fiat currency (and fiat to crypto-assets) are

registered within their local jurisdiction. It will be the responsibility of these exchanges to examine the source

of funds from peer-to-peer transaction. At the same time the risk of peer-to-peer should be communicated in

the Supranational risk assessment, to make sure the virtual asset exchanges takes this risk into account

when assessing the risk of their business.

originating Virtual Assets Service Providers (VASP) obtain and hold required and accurate originator information and

required beneficiary information on virtual asset transfers, submit the above information to the beneficiary VASP or

financial institution (if any) immediately and securely, and make it available on request to appropriate authorities.

Countries should also ensure that beneficiary VASPs obtain and hold required originator information and required and

accurate beneficiary information on virtual asset transfers and make it available on request to appropriate authorities

”

(FATF Recommendations).

In order to tackle the dangers linked to anonymity, new FATF standards require that “

countries should ensure that

Question 45. Do you consider that these requirements should be introduced

in the EU AML/CFT legal framework with additional details on their practical

implementation?

Yes

Don’t know / no opinion / not relevant

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

45.1 Please explain your reasoning for your answer to question 45:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It seems like this FATF requirement is based on how the traditional transaction infrastructure works. SWIFT

payments can carry a message, like the message requested in FATF’s recommendation 16. However, if a

similar message is submitted by the originating VASP to be carried on-chain to the beneficiary VASP this will

be a major breach of GDPR because the originator and beneficiary information (names, social security

numbers etc.) will be publicly available and never can be deleted afterwards.

Because of this, the massage must then be submitted off-chain, e.g. by the use of API-connections between

the originator and beneficiary VASP’s. In traditional correspondent banking relationships, the banks have

entered into an agreement before transactions are possible to be conducted between the banks. This is not

the case, when it comes to VASP’s. A VASP is open for receiving any transaction as long as the receiving

address is revealed/made available. The originating VASP is not able to know, who the beneficiary VASP is.

Applying these requirements will lead to forced non-compliance with the AML/CTF-framework of all VASP’s

as there (so far) is no answer to how this issue should be solved theoretically or technically.

Question 46. In your view, do you consider relevant that the following

requirements are imposed as conditions for the registration and licensing of

providers of services related to crypto-assets included in section III. B?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

(completely

irrelevant)

2 3 4

(highly

relevant)

know /

opinion

not

relevant

Directors and senior management of such

providers should be subject to fit and

proper test from a money laundering point

of view, meaning that they should not

have any convictions or suspicions on

money laundering and related offences

Service providers must be able to

demonstrate their ability to have all the

controls in place in order to be able to

comply with their obligations under the

anti-money laundering framework

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

46.1 Please explain your reasoning for your answer to question 46:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The fit and proper regime is designed for assessing the directors and senior management in companies that

are centralized and run by people. Some larger exchanges and crypto-asset service providers are run by

people, and in this case it makes sense to conduct fit and proper test from a money laundering point of view.

However, part of the vision and goal of the crypto economy is to create decentralization, making

decentralized finance “trustless” meaning you have to trust the smart contract (computer code), not the

developers behind it.

The same argumentation is used, when it comes to the requirement, if service providers must be able to

demonstrate their ability to have all the controls in place.

3. Consumer/investor protection

Information on the profile of crypto-asset investors and users is limited. Some estimates suggest however that the user

base has expanded from the original tech-savvy community to a broader audience, including both retail and institutional

investors

. Offerings of utility tokens, for instance, do not provide for minimum investment amounts nor are they

necessarily limited to professional or sophisticated investors. When considering the consumer protection, the functions

of the crypto-assets should also be taken into consideration. While some crypto-assets are bought for investment

purposes, other are used as a means of payment or for accessing a specific product or service. Beyond the information

that is usually provided by crypto-asset issuer or sponsors in their ‘white papers’, the question arises whether providers

of services related to crypto-assets should carry out suitability checks depending on the riskiness of a crypto-asset (e.g.

volatility, conversion risks, ...) relative to a consumer’s risk appetite. Other approaches to protect consumers and

investors could also include, among others, limits on maximum investable amounts by EU consumers or warnings on

the risks posed by crypto-assets.

The term ‘consumer’ or ‘investor’ are both used in this section, as the same type of crypto-assets can be bought for different

purposes. For instance, payment tokens can be acquired to make payment transactions while they can also be held for

investment, given their volatility. Likewise, utility tokens can be bought either for investment or for accessing a specific product or

service.

ESMA, “Advice on initial coin offerings and Crypto-Assets”

January 2019.

Question 47. What type of consumer protection measures could be taken as

regards crypto-assets?

Please rate from 1 (completely irrelevant) to 5 (highly relevant)

Don’t

know /

(completely

irrelevant)

2 3 4

(highly

relevant)

opinion

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

not

relevant

Information provided by the issuer of

crypto-assets (the so-called ‘white papers’)

Limits on the investable amounts in crypto-

assets by EU consumers

Suitability checks by the crypto-asset

service providers (including exchanges,

wallet providers, ...)

Warnings on the risks by the crypto-asset

service providers (including exchanges,

platforms, custodial wallet providers, ...)

47.1 Is there any other type of consumer protection measures that could be

taken

regards

crypto-assets?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

47.2 Please explain your reasoning for your answer to question 47 and

indicate if those requirements should apply to all types of crypto assets or

only to some of them:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Due to the rapid technological progress in the highly complex area of crypto assets there is likely to be a

high need for consumer protection, especially around areas such as transparency and information.

Question 48. Should different standards of consumer/investor protection be

applied to the various categories of crypto-assets depending on their

prevalent economic (i.e. payment tokens, stablecoins, utility tokens, ...) or

social function?

Yes

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Don’t know / no opinion / not relevant

48.1 Please explain your reasoning for your answer to question 48:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see comment to previous questions. It is likely to be increasingly difficult to distinguish between

various types of crypto assets as most mature blockchains are developing new capabilities such as smart

contract functionality.

Before an actual ICO (i.e. a public sale of crypto-assets by means of mass distribution), some issuers may choose to

undertake private offering of crypto-assets, usually with a discounted price (the so-called “private sale”), to a small

number of identified parties, in most cases qualified or institutional investors (such as venture capital funds).

Furthermore, some crypto-asset issuers or promoters distribute a limited number of crypto-assets free of charge or at a

lower price to external contributors who are involved in the IT development of the project (the so-called “bounty”) or who

raise awareness of it among the general public (the so-called “air drop”) (see Autorité des Marchés Financiers, French

ICOs – A New Method of financing, November 2018).

Question 49. Should different standards in terms of consumer/investor

protection be applied depending on whether the crypto-assets are bought in

a public sale or in a private sale?

Yes

Don’t know / no opinion / not relevant

49.1 Please explain your reasoning for your answer to question 49:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It is highly relevant to keep in mind that there is a strong need for guidelines and specification of the product

(as complex) and that there is a need for a minimum standard of at least an appropriateness assessments

prior to the trade of crypto-assets when trading crypto assets.

Question 50. Should different standards in terms of consumer/investor

protection be applied depending on whether the crypto-assets are obtained

against payment or for free (e.g. air drops)?

Yes

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Yes

Don’t know / no opinion / not relevant

50.1 Please explain your reasoning for your answer to question 50:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The vast majority of crypto-assets that are accessible to EU consumers and investors are currently issued outside

the EU (in 2018, for instance, only 10% of the crypto-assets were issued in the EU (mainly, UK, Estonia and Lithuania)

– Source Satis Research). If an EU framework on the issuance and services related to crypto-assets is needed, the

question arises on how those crypto-assets issued outside the EU should be treated in regulatory terms.

Question 51. In your opinion, how should the crypto-assets issued in third

countries and that would not comply with EU requirements be treated?

Please rate from 1 (factor not relevant at all) to 5 (very relevant factor)

Don’t

(factor

not

relevant

at all)

2 3 4

(very

relevant

factor)

know /

opinion

not

relevant

Those crypto-assets should be banned

Those crypto-assets should be still accessible

to EU consumers/investors

Those crypto-assets should be still accessible

to EU consumers/investors but accompanied

by a warning that they do not necessarily

comply with EU rules

51.1 Is there any other way the crypto-assets issued in third countries and

that would not comply with EU requirements should be treated?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Third countries issuers or sponsors of crypto-assets marketing its crypto-assets in EU should adhere to the

same rules, as EU-issuers or -sponsors of crypto-assets. Further, each member state should have the

possibility to ban certain crypto-assets if a problem should arise in their jurisdiction.

51.2 Please explain your reasoning for your answer to question 51:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

There should be level playing field among crypto-assets issuers or sponsors and in order to ensure the

highest level of investor/consumer protection as well as orderly markets and financial stability each member

state should be allowed to ban certain crypto-assets.

4. Supervision and oversight of crypto-assets service providers

As a preliminary remark, it should be noted that where a crypto-asset arrangement, including “stablecoin” arrangements

qualify as payment systems and/or scheme, the

Eurosystem oversight frameworks may apply

. In accordance with its

mandate, the Eurosystem is looking to apply its oversight framework to innovative projects. As the payment landscape

continues to evolve, the Eurosystem oversight frameworks for payments instruments, schemes and arrangements are

currently reviewed with a view to closing any gaps that innovative solutions might create by applying a holistic, agile

and functional approach. The European Central Bank and Eurosystem will do so in cooperation with other relevant

European authorities. Furthermore, the Eurosystem supports the creation of cooperative oversight frameworks

whenever a payment arrangement is relevant to multiple jurisdictions.

That being said, if a legislation on crypto-assets service providers at EU level is needed, a question arises on which

supervisory authorities in the EU should ensure compliance with that regulation, including the licensing of those entities.

As the size of the crypto-asset market is still small and does not at this juncture raise financial stability issues, the

supervision of the service providers (that are still a nascent industry) by national competent authorities would be

justified. At the same time, as some new initiatives (such as the “global stablecoin”) through their global reach and can

raise financial stability concerns at EU level, and as crypto-assets will be accessible through the internet to all

perspective. This could be achieved,

inter alia

, by empowering the European Authorities (e.g. in cooperation with the

European System of Central Banks) to supervise and oversee crypto-asset service providers. In any case, as the

crypto-asset market rely on new technologies, EU regulators could face new challenges and require new supervisory

and monitoring tools.

consumers, investors and firms across the EU, it could be sensible to ensure an equally EU-wide supervisory

Question 52. Which, if any, crypto-asset service providers included in

Section III. B do you think should be subject to supervisory coordination or

supervision by the European Authorities (in cooperation with the ESCB

w h e r e

r e l e v a n t ) ?

Please explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

N/A

Question 53. Which are the tools that EU regulators would need to

adequately supervise the crypto-asset service providers and their underlying

technologies?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

IV. Crypto-assets that are currently covered by EU legislation

This last part of the public consultation consists of general questions on security tokens (A.), an assessment of

legislation applying to security tokens (B.) and an assessment of legislation applying to e-money tokens (C.).

A. General questions on ‘security tokens’

Introduction

For the purpose of this section, we use the term ‘security tokens’ to refer to crypto-assets issued on a DLT and that

qualify as transferable securities or other types of MiFID financial instruments. By extension, activities concerning

security tokens would qualify as MiFID investment services/activities and transactions in security tokens admitted to

trading or traded on a trading venue

would be captured by MiFID provisions. Consequently, firms providing services

concerning security tokens should ensure they have the relevant MiFID authorisations and that they follow the relevant

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

rules and requirements. MiFID is a cornerstone of the EU regulatory framework as financial instruments covered by

MiFID are also subject to other financial legislation such as

CSDR

EMIR

, which therefore equally apply to post-trade

activities related to security tokens.

Building on

ESMA’s advice on crypto-assets and ICOs

issued in January 2019 and on a preliminary legal assessment

on trading, post-trading and other financial services concerning security tokens, such as asset management, the

purpose of this part of the consultation is to seek stakeholders’ views on the issues identified below that are relevant for

the application of the existing regulatory framework to security tokens.

Technology neutrality is one of the guiding principles of the Commission’s policies. A technologically neutral approach

means that legislation should not mandate market participants to use a particular type of technology. It is therefore

crucial to address any obstacles or identify any gaps in existing EU laws which could prevent the take-up of financial

innovation, such as DLT, or leave certain risks brought by these innovations unaddressed. In parallel, it is also

important to assess whether the market practice or rules at national level could facilitate or be an impediment that

should also be addressed to ensure a consistent approach at EU level.

carried out by Commission services on the applicability and suitability of the existing EU legislation (mainly at level 1

)

Trading venues are a regulated market, a multilateral trading facility or an organised trading facility.

At level 1, the European Parliament and Council adopt the basic laws proposed by the Commission, in the traditional co-

decision procedure. At level 2 the Commission can adopt, adapt and update technical implementing measures with the help of

consultative bodies composed mainly of EU countries representatives. Where the level 2 measures require the expertise of

supervisory experts, it can be determined in the basic act that these measures are delegated or implemented acts based on draft

technical standards developed by the European supervisory authorities.

Current trends concerning security tokens

For the purpose of the consultation, we consider the instances where security tokens would be admitted to trading or

traded on a trading venue within the meaning of MiFID. So far, however, there is evidence of only a few instances of

admitted in a CSD book-entry system

security tokens issuance

, with none of them having been admitted to trading or traded on a trading venue nor

Based on the limited evidence available at supervisory and regulatory level, it appears that existing requirements in the

trading and post-trade area would largely be able to accommodate activities related to security tokens via permissioned

networks and centralised platforms

. Such activities would be overseen by a central body or operator, de facto

similarly to traditional market infrastructures such as multilateral trading venues or central security depositories. Based

on the limited evidence currently available from the industry, it seems that activities related to security tokens would

most likely develop via authorised centralised solutions. This could be driven by the relative efficiency gain that the use

of the legacy technology of a central provider can generally guarantee (with near-instantaneous speed and high liquidity

with large volumes), along with the business expertise of the central provider that would also ensure higher investor

protection and easier supervision and enforcement of the rules.

On the other hand, it seems that adjustment of existing EU rules would be required to allow for the development of

permissionless networks and decentralised platforms where activities would not be entrusted to a central body or

operator but would rather occur on a peer-to-peer

basis. Given the absence of a central body that would be

accountable for enforcing the rules of a public market, trading and post-trading on permissionless networks could also

potentially create risks as regards market integrity and financial stability, which are regarded as being of utmost

importance by the EU financial acquis.

The Commission services’ understanding is that permissionless networks and decentralised platforms

are still in their

infancy, with uncertain prospects for future applications in financial services due to their higher trade latency and lower

liquidity. Permissionless decentralised platforms could potentially develop only at a longer time horizon when further

maturing of the technology would provide solutions for a more efficient trading architecture. Therefore, it could be

premature at this point in time to make any structural changes to the EU regulatory framework.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Security tokens are, in principle, covered by the EU legal framework on asset management in so far as such security

tokens fall within the scope of “financial instrument” under MiFID II. To date, however, the examples of the regulatory

use cases of DLT in the asset management domain have been incidental.

To conclude, depending on the feedback to this consultation, a gradual regulatory approach might be considered, trying

to provide first legal clarity to market participants as regards permissioned networks and centralised platforms before

considering changes in the regulatory framework to accommodate permissionless networks and decentralised

platforms.

At the same time, the Commission services would like to use this opportunity to gather views on market trends as

regards permissionless networks and decentralised platforms, including their potential impact on current business

models and the possible regulatory approaches that may be needed to be considered, as part of a second step. A list of

questions is included after the assessment by legislation.

For example the German Fundament STO which received the authorisation from Bafin in July 2019

See section IV.2.5 for further information

Type of crypto-asset trading platforms that holds crypto-assets on behalf of its clients. The trade settlement usually takes place

in the books of the platforms, i.e. off-chain.

In the trading context, going peer-to-peer means having participants buy and sell assets directly with each other, rather than

working through an intermediary or third party service

Type of crypto-asset trading platforms that do not hold crypto-assets on behalf of its clients. The trade settlement usually takes

place on the DLT itself, i.e. on-chain.

Question 54. Please highlight any recent market developments (such as

issuance of security tokens, development or registration of trading venues

for security tokens, ...) as regards security tokens (at EU or national level)?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The DFSA is not aware of any recent market developments.

Question 55. Do you think that DLT could be used to introduce efficiencies or

other benefits in the trading, post-trade or asset management areas?

Completely agree

Rather agree

Neutral

Rather disagree

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

55.1 Please explain your reasoning for your answer to question 55:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In general, efficiencies may achieved in the area of clearing, settlement and custody, since DLT might be

able to speed up this process. Such efficiencies would be likely to reduce the time from an execution of a

trade to clearing and settlement and consequently foster a lower risk premium.

Question 56. Do you think that the use of DLT for the trading and post-trading

of financial instruments poses more financial stability risks when compared

to the traditional trading and post-trade architecture?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

56.1 Please explain your reasoning for your answer to question 56:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A proof of concept is currently missing in order for the DFSA to asses any efficiencies in the trading

architecture.

Question 57. Do you consider that DLT will significantly impact the role and

operation of trading venues and post-trade financial market infrastructures

(CCPs,

CSDs)

the

future

(5/10

years’

time)?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Presumably not in the Danish market. The only CSD in DK has made it clear that it will not implement DLT in

near future due to other more urgent IT-development goals.

Question 58. Do you agree that a gradual regulatory approach in the areas of

trading, post-trading and asset management concerning security tokens (e.g.

provide regulatory guidance or legal clarification first regarding

permissioned centralised solutions) would be appropriate?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

58.1 Please explain your reasoning for your answer to question 58:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Regulatory guidance would be necessary in order for the market to develop and evolve. The development of

DLT technology requires a lot of capital and in order for to gain an interest from investors and ventures

willing to build DLT-platforms or the like, it would be a good initiative to provide regulatory guidance and legal

clarification in order to mitigate the legal risk for market participates (i.e. an ex-post assessment of a product

that proves to be non-complying with existing regulation would incur a loss for investors / or firms).

B. Assessment of legislation applying to ‘security tokens’

1. Market in Financial Instruments Directive framework (MiFID II)

The Market in Financial Instruments Directive framework consists of a

directive (MiFID)

and a

regulation (MiFIR)

and

their delegated acts. MiFID II is a cornerstone of the EU’s regulation of financial markets seeking to improve their

competitiveness by creating a single market for investment services and activities and to ensure a high degree of

harmonised protection for investors in financial instruments. In a nutshell MiFID II sets out: (i) conduct of business and

organisational requirements for investment firms; (ii) authorisation requirements for regulated markets, multilateral

trading facilities, organised trading facilities and broker/dealers; (iii) regulatory reporting to avoid market abuse; (iv)

trade transparency obligations for equity and non-equity financial instruments; and (v) rules on the admission of

financial instruments to trading. MiFID also contains the harmonised EU rulebook on investor protection, retail

distribution and investment advice.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

1.1 Financial instruments

Under MiFID, financial instruments are specified in Section C of Annex I. These are inter alia ‘transferable securities’,

‘money market instruments’, ‘units in collective investment undertakings’ and various derivative instruments. Under

Article 4(1)(15), ‘transferable securities’ notably means those classes of securities which are negotiable on the capital

market, with the exception of instruments of payment.

There is currently no legal definition of security tokens in the EU financial services legislation. Indeed, in line with a

functional and technologically neutral approach to different categories of financial instruments in MiFID, where security

tokens meet necessary conditions to qualify as a specific type of financial instruments, they should be regulated as

such. However, the actual classification of a security token as a financial instrument is undertaken by National

Competent Authorities (NCAs) on a case-by-case basis.

In its Advice, ESMA indicated

that in transposing MiFID into their national laws, the Member States have defined

specific categories of financial instruments differently (i.e. some employ a restrictive list to define transferable securities,

others use broader interpretations). As a result, while assessing the legal classification of a security token on a case by

case basis, Member States might reach diverging conclusions. This might create further challenges to adopting a

common regulatory and supervisory approach to security tokens in the EU.

Furthermore, some ‘hybrid’ crypto-assets can have ‘investment-type’ features combined with ‘payment-type’ or ‘utility-

type’ characteristics. In such cases, the question is whether the qualification of ‘financial instruments’ must prevail or a

different notion should be considered.

Question 59. Do you think that the absence of a common approach on when

a security token constitutes a financial instrument is an impediment to the

effective development of security tokens?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

59.1 Please explain your reasoning for your answer to question 59:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Crypto-assets are offered on the internet and are as such cross-border in nature. Therefore, the Danish

government finds that the regulation of crypto-assets should be set out on at least EU-level.

Question 60. If you consider that the absence of a common approach on

when a security token constitutes a financial instrument is an impediment,

what would be the best remedies according to you?

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Please rate from 1 (factor not relevant at all) to 5 (very relevant factor)

Don’t

(factor

not

relevant

at all)

2 3 4

(very

relevant

factor)

know /

opinion

not

relevant

Harmonise the definition of certain types of

financial instruments in the EU

Provide a definition of a security token at EU

level

Provide guidance at EU level on the main

criteria that should be taken into

consideration while qualifying a crypto-asset

as security token

60.1 Is there any other solution that would be the best remedies according to

you?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

60.2 Please explain your reasoning for your answer to question 60:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

In order to ensure level playing field among traditional providers of financial services and providers of

financial services using new technology like DLT as well as addressing the risk of regulatory arbitrage

between member states the Danish government finds that it is important with a common understanding at

EU level on the understanding of what constitute a financial instrument.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 61. How should financial regulators deal with hybrid cases where

tokens display investment-type features combined with other features (utility-

type or payment-type characteristics)?

Please rate from 1 (factor not relevant at all) to 5 (very relevant factor)

Don’t

(factor

not

relevant

at all)

2 3 4

(very

relevant

factor)

know /

opinion

not

relevant

Hybrid tokens should qualify as financial

instruments/security tokens

Hybrid tokens should qualify as unregulated

crypto-assets (i.e. like those considered in

section III. of the public consultation

document)

The assessment should be done on a case-

by-case basis (with guidance at EU level)

61.1 Is there any other way financial regulators should deal with hybrid cases

where tokens display investment-type features combined with other features?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35.

61.2 Please explain your reasoning for your answer to question 61:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government refers to the ESMA Advice (ESMA50-157-1391).

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

1.2. Investment firms

According to Article 4(1)(1) and Article 5 of MiFID, all legal persons offering investment services/activities in relation to

financial instruments need be authorised as investment firms to perform those activities/services. The actual

authorisation of an investment firm is undertaken by the NCAs with respect to the conditions, requirements and

procedures to grant the authorisation. However, the application of these rules to security tokens may create challenges,

as they were not designed with these instruments in mind.

Question 62. Do you agree that existing rules and requirements for

investment firms can be applied in a DLT environment?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

62.1 Please explain your reasoning for your answer to question 62:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35.

Question 63. Do you think that a clarification or a guidance on applicability of

such rules and requirements would be appropriate for the market?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

63.1 Please explain your reasoning for your answer to question 63:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

1.3 Investment services and activities

Under MiFID Article 4(1)(2), investment services and activities are specified in Section A of Annex I, such as ‘reception

and transmission of orders, execution of orders, portfolio management, investment advice, etc. A number of activities

related to security tokens are likely to qualify as investment services and activities. The organisational requirements,

the conduct of business rules and the transparency and reporting requirements laid down in MiFID II would also apply,

depending on the types of services offered and the types of financial instruments.

Question 64. Do you think that the current scope of investment services and

activities under MiFID II is appropriate for security tokens?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

64.1 Please explain your reasoning for your answer to question 64:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35.

Question 65. Do you consider that the transposition of MiFID II into national

laws or existing market practice in your jurisdiction would facilitate or

otherwise prevent the use of DLT for investment services and activities?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Consequently,

we see challenges in the use of the MiFID II rules on this type of assets. However, we find that a bespoke

regime for crypto-assets could be MiFID II-inspired to ensure, among other things, investor/consumer

protection and level playing field among traditional providers of financial services and providers of financial

services using new technology such as DLT. Please also see answer to question 35.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

1.4. Trading venues

Under MiFID Article 4(1)(24) ‘trading venue’ means a regulated market (RM), a Multilateral Trading Facility (MTF) or an

Organised Trading Facility (OTF’) which are defined as a multilateral system operated by a market operator or an

investment firm, bringing together multiple third-party buying and selling interests in financial instruments. This means

that the market operator or an investment firm must be an authorised entity, which has legal personality.

As also

reported by ESMA in its advice

, platforms which would engage in trading of security tokens may fall under three

main broad categories as follows:

Platforms with a central order book and/or matching orders would qualify as multilateral systems;

Operators of platforms dealing on own account and executing client orders against their proprietary capital,

would not qualify as multilateral trading venues but rather as investment firms; and

Platforms that are used to advertise buying and selling interests and where there is no genuine trade execution

or arranging taking place may be considered as bulletin boards and fall outside of MiFID II scope (recital 8 of

MiFIR).

Question 66. Would you see any particular issues (legal, operational) in

applying trading venue definitions and requirements related to the operation

and authorisation of such venues to a DLT environment which should be

a d d r e s s e d ?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No. Only in relation to identification and supervision of such venues. In general the Danish government

would need to broaden supervision and market surveillance in order to capture and prosecute potential

offences.

1.5. Investor protection

A fundamental principle of MiFID II (Articles 24 and 25) is to ensure that investment firms act in the best interests of

their clients. Firms shall prevent conflicts of interest, act honestly, fairly and professionally and execute orders on terms

most favourable to the clients. With regard to investment advice and portfolio management, various information and

product governance requirements apply to ensure that the client is provided with a suitable product.

Question 67. Do you think that current scope of investor protection rules

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 67. Do you think that current scope of investor protection rules

(such as information documents and the suitability assessment) are

appropriate

for

security

tokens?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35 and question 65.

The framework of MiFID II is considered suitable for crypto-assets, but there is a strong need for guidelines

and specification of the product (as complex). There is a need for a minimum standard of at least an

appropriateness assessment prior to the trade of crypto-assets.

Question 68. Would you see any merit in establishing specific requirements

on the marketing of security tokens via social media or online?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It is worth considering restrictions in relation to the access to marketing security tokens via social media such

as Facebook. However, it is difficult to control as this can be promoted in closed groups which the FSAs

does not have access to (which the Danish FSA does not have a legal basis to do).

Question 69. Would you see any particular issue (legal, operational,) in

applying MiFID investor protection requirements to security tokens?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that a bespoke regime for crypto-assets should be developed. Please see

answer to question 35 and question 65.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

1.6. SME growth markets

To be registered as SME growth markets, MTFs need to comply with requirements under Article 33 (e.g. 50% of SME

issuers, appropriate criteria for initial and ongoing admission, effective systems and controls to prevent and detect

market abuse). SME growth markets focus on trading securities of SME issuers. The average number of transactions in

SME securities is significantly lower than those with large capitalisation and therefore less dependent on low latency

and high throughput. Since trading solutions on DLT often do not allow processing the amount of transactions typical

for most liquid markets, the Commission is interested in gathering feedback on whether trading on DLT networks could

offer cost efficiencies (e.g. lower costs of listing, lower transaction fees) or other benefits for SME Growth Markets that

are not necessarily dependent on low latency and high throughput.

Question 70. Do you think that trading on DLT networks could offer cost

efficiencies or other benefits for SME Growth Markets that do not require low

latency

and

high

throughput?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

1.7. Systems resilience, circuit breakers and electronic trading

According to Article 48 of MiFID, Member States shall require a regulated market to have in place effective systems,

procedures and arrangements to ensure its trading systems are resilient, have sufficient capacity and fully tested to

ensure orderly trading and effective business continuity arrangements in case of system failure. Furthermore regulated

markets that permits direct electronic access

shall have in place effective systems procedures and arrangements to

or credit institutions. The same requirements also apply to MTFs and OTFs according to Article 18(5). These

requirements could be an issue for security tokens, considering that crypto-asset trading platforms typically provide

direct access to retail investors.

ensure that members are only permitted to provide such services if they are investment firms authorised under MiFID II

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

As defined by article 4(1)(41) and in accordance with Art 48(7) of MIFID by which trading venues should only grant permission

to members or participants to provide direct electronic access if they are investment firms authorised under MiFID or credit

institutions authorised under the

Credit Requirements Directive (2013/36/EU)

Question 71. Would you see any particular issue (legal, operational) in

applying these requirements to security tokens which should be addressed?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No. The Danish government has the necessary supervisory powers in order to enforce IT-related provisions.

Since multilateral facilities would have to comply with conduct rules and licenses to operate, the DFSA would

be able to asses compliance at an ex ante basis.

1.8. Admission of financial instruments to trading

In accordance with Article 51 of MiFID, regulated markets must establish clear and transparent rules regarding the

admission of financial instruments to trading as well as the conditions for suspension and removal. Those rules shall

ensure that financial instruments admitted to trading on a regulated market are capable of being traded in a fair, orderly

and efficient manner. Similar requirements apply to MTFs and OTFs according to Article 32. In short, MiFID lays down

general principles that should be embedded in the venue’s rules on admission to trading, whereas the specific rules are

established by the venue itself. Since markets in security tokens are very much a developing phenomenon, there may

be merit in reinforcing the legislative rules on admission to trading criteria for these assets.

Question 72. Would you see any particular issue (legal, operational) in

applying these requirements to security tokens which should be addressed?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 1.9 Access to a trading venues

In accordance with Article 53(3) and 19(2) of MiFID, RMs and MTFs may admit as members or participants only

investment firms, credit institutions and other persons who are of sufficient good repute; (b) have a sufficient level of

trading ability, competence and ability (c) have adequate organisational arrangements; (d) have sufficient resources for

their role. In effect, this excludes retail clients from gaining direct access to trading venues. The reason for limiting this

kind of participants in trading venues is to protect investors and ensure the proper functioning of the financial markets.

However, these requirements might not be appropriate for the trading of security tokens as crypto-asset trading

platforms allow clients, including retail investors, to have direct access without any intermediation.

Question 73. What are the risks and benefits of allowing direct access to

trading

venues

broader

base

clients?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

1.10 Pre and post-transparency requirements

In its Articles 3 to 11, MiFIR sets out transparency requirements for trading venues in relations to both equity and non-

equity instruments. In a nutshell for equity instruments, it establishes pre-trade transparency requirements with certain

waivers subject to restrictions (i.e. double volume cap) as well as post-trade transparency requirements with authorised

tokens. The availability of data could perhaps be an issue for best execution

of security tokens platforms. For the

transparency requirements, it could perhaps be more difficult to establish meaningful transparency thresholds

according to the calibration specified in MIFID, which is based on EU wide transaction data. However, under current

circumstances, it seems difficult to clearly determine the need for any possible adaptations of existing rules due to the

lack of actual trading of security tokens.

deferred publication. Similar structure is replicated for non-equity instruments. These provisions would apply to security

MiFID II investment firms must take adequate measures to obtain the best possible result when executing the client's orders.

This obligation is referred to as the best execution obligation.

Question 74. Do you think these pre- and post-transparency requirements are

appropriate for security tokens?

Completely agree

Rather agree

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

74.1 Please explain your reasoning for your answer to question 74:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 75. Would you see any particular issue (legal, operational) in

applying these requirements to security tokens which should be addressed

(e.g. in terms of availability of data or computation of thresholds)?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Since the trading of security tokens is a fairly new market, a lack of available data makes it difficult for the

Danish government to asses this question. If the general provisions from the MiFID II, MIFIR, MAR and

CSDR etc. would apply to such security tokens, this would force the market to comply and consequently, any

legal or operational issues would only be identified ex post.

1.11. Transaction reporting and obligations to maintain records

In its Article 25 and 26, MiFIR sets out detailed reporting requirements for investment firms to report transactions to

their competent authority. The operator of the trading venue is responsible for reporting the details of the transactions

where the participants is not an investment firm. MiFIR also obliges investment firms or the operator of the trading

venue to maintain records for five years. Provisions would apply to security tokens very similarly to traditional financial

instruments. The availability of all information on financial instruments required for reporting purposes by the Level 2

provisions could perhaps be an issue for security tokens (e.g. ISIN codes are mandatory).

Question 76. Would you see any particular issue (legal, operational) in

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 76. Would you see any particular issue (legal, operational) in

applying these requirement to security tokens which should be addressed?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please refer to the answer above.

2. Market Abuse Regulation (MAR)

MAR

establishes a comprehensive legislative framework at EU level aimed at protecting market integrity. It does so by

establishing rules around prevention, detection and reporting of market abuse. The types of market abuse prohibited in

MAR are insider dealing, unlawful disclosure of inside information and market manipulation. The proper application of

the MAR framework is very important for guaranteeing an appropriate level of integrity and investor protection in the

context of trading in security tokens.

Security tokens are covered by the MAR framework where they fall within the scope of that regulation, as determined

by its Article 2. Broadly speaking, this means that all transactions in security tokens admitted to trading or traded on a

trading venue (under MiFID Article 4(1)(24) ‘trading venue’ means a regulated market (RM), a Multilateral Trading

Facility (MTF) or an Organised Trading Facility (OTF’)) are captured by its provisions, regardless of whether

transactions or orders in those tokens take place on a trading venue or are conducted over-the-counter (OTC).

2.1. Insider dealing

Pursuant to Article 8 of MAR, insider dealing arises where a person possesses inside information and uses that

information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly,

financial instruments to which that information relates. In the context of security tokens, it might be the case that new

actors, such as miners or wallet providers, hold new forms of inside information and use it to commit market abuse. In

this regard, it should be noted that Article 8(4) of MAR contains a catch-all provision applying the notion of insider

dealing to all persons who possess inside information other than in circumstances specified elsewhere in the provision.

Question 77. Do you think that the current scope of Article 8 of MAR on

insider dealing is appropriate to cover all cases of insider dealing for security

t o k e n s ?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It depends on the kind of security token in question, especially on whether or not there is an underlying

issuer that can be identified. If the security token has currency-like features, it would difficult to apply art. 8.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

In order to identify an insider, this should in general relate to either a physical or legal person employed by or

working on behalf of the issuer or relate to someone who has inside information of a upcoming event (sell

off, divestment or the like, that could led the person to try to engage in “front running”).

Regulatory guidance would need to be provided in order for supervisors to understand the legal aspects of

issuers vs. security tokens.

2.2. Market manipulation

In its Article 12(1)(a), MAR defines market manipulation primarily as covering those transactions and orders which (i)

give false or misleading signals about the volume or price of financial instruments or (ii) secure the price of a financial

instrument at an abnormal or artificial level. Additional instances of market manipulation are described in paragraphs (b)

to (d) of Article 12(1) of MAR.

Since security tokens and blockchain technology used for transacting in security tokens differ from how trading of

traditional financial instruments on existing trading infrastructure is conducted, it might be possible for novel types of

market manipulation to arise that MAR does not currently address. Finally, there could be cases where a certain

financial instrument is covered by MAR but a related unregulated crypto-asset is not in scope of the market abuse

framework. Where there would be a correlation in values of such two instruments, it would also be conceivable to

influence the price or value of one through manipulative trading activity of the other.

Question 78. Do you think that the notion of market manipulation as defined

in Article 12 of MAR is sufficiently wide to cover instances of market

manipulation

security

tokens?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Yes – the current notion of market manipulation should be sufficient to capture market manipulation cases

on security tokens. If proper market surveillance was to be conducted by trading venues and if proper trading

reporting measures would be taken, the DFSA would be able to sufficient data to monitor and conduct

market surveillance.

Question 79. Do you think that there is a particular risk that manipulative

trading in crypto-assets which are not in the scope of MAR could affect the

price or value of financial instruments covered by MAR?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Manipulative trading in crypto assets would only be able to affect the price on financial instruments with an

exposure to said assets (e.g. an interest rate-derivative that are partly constructed of an exposure to a crypto

asset). If a crypto asset is defined as a commodity, it would generally be captures by the existing market

abuse regime.

3. Short Selling Regulation (SSR)

The

Short Selling Regulation (SSR)

sets down rules that aim to achieve the following objectives: (i) increase

transparency of significant net short positions held by investors; (ii) reduce settlement risks and other risks associated

with uncovered short sales; (iii) reduce risks to the stability of sovereign debt markets by providing for the temporary

suspension of short-selling activities, including taking short positions via sovereign credit default swaps (CDSs), where

sovereign debt markets are not functioning properly. The SSR applies to MiFID II financial instruments admitted to

trading on a trading venue in the EU, sovereign debt instruments, and derivatives that relate to both categories.

According to

ESMA’s advice

, security tokens fall in the scope of the SSR where a position in the security token would

confer a financial advantage in the event of a decrease in the price or value of a share or sovereign debt. However,

ESMA remarks that the determination of net short positions for the application of the SSR is dependent on the list of

financial instruments set out in Annex I of Commission Delegated Regulation (EU) 918/2012), which should therefore

be revised to include those security tokens that might generate a net short position on a share or on a sovereign debt.

According to ESMA, it is an open question whether a transaction in an unregulated crypto-asset could confer a financial

advantage in the event of a decrease in the price or value of a share or sovereign debt, and consequently, whether the

Short Selling Regulation should be amended in this respect.

Question 80. Have you detected any issues that would prevent effectively

applying SSR to security tokens?

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

(not a

concern)

2 3 4

(strong

concern)

know /

opinion

strong

concern

Transparency for significant net short

positions

Restrictions on uncovered short selling

Competent authorities’ power to apply

temporary restrictions to short selling

80.1 Is there any other issue that would prevent effectively applying SSR to

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

80.1 Is there any other issue that would prevent effectively applying SSR to

s e c u r i t y

t o k e n s ?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

80.2 Please explain your reasoning for your answer to question 80:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 81. Have you ever detected any unregulated crypto-assets that

could confer a financial advantage in the event of a decrease in the price or

value

sovereign

debt?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

4. Prospectus Regulation (PR)

The

Prospectus Regulation

establishes a harmonised set of rules at EU level about the drawing up, structure and

oversight of the prospectus, which is a legal document accompanying an offer of securities to the public and/or an

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

admission to trading on a regulated market. The prospectus describes a company's main line of business, its finances,

its shareholding structure and the securities that are being offered and/or admitted to trading on a regulated market. It

contains the information an investor needs before making a decision whether to invest in the company's securities.

4.1. Scope and exemptions

With the exception of out of scope situations and exemptions (Article 1(2) and (3)), the PR requires the publication of a

prospectus before an offer to the public or an admission to trading on a regulated market (situated or operating within a

Member State) of transferable securities as defined in MiFID II. The definition of ‘offer of securities to the public’ laid

down in Article 2(d) of the PR is very broad and should encompass offers (e.g. STOs) and advertisement relating to

security tokens. If security tokens are offered to the public or admitted to trading on a regulated market, a prospectus

would always be required unless one of the exemptions for offers to the public under Article 1(4) or for admission to

trading on a RM under Article 1(5) applies.

Question 82. Do you consider that different or additional exemptions should

apply to security tokens other than the ones laid down in Article 1(4) and

Article 1(5) of PR?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

82.1 Please explain your reasoning for your answer to question 82:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that the PR should be sufficient to cover security tokens. Since especially

crypto coins typically do not have an issuer or be subject to any central bank guaranty, this might foster

further provisions in order to secure that prospective investors are well informed.

4.2. The drawing up of the prospectus

Delegated Regulation (EU) 2019/980,

which lays down the format and content of all the prospectuses and its related

documents, does not include schedules for security tokens. However, Recital 24 clarifies that, due to the rapid evolution

of securities markets, where securities are not covered by the schedules to that Regulation, national competent

authorities should decide in consultation with the issuer which information should be included in the prospectus. Such

approach is meant to be a temporary solution. A long term solution would be to either (i) introduce additional and

specific schedules for security tokens, or (ii) lay down ‘building blocks’ to be added as a complement to existing

schedules when drawing up a prospectus for security tokens.

The level 2 provisions of prospectus also defines the specific information to be included in a prospectus, including Legal

Entity Identifiers (LEIs) and ISIN. It is therefore important that there is no obstacle in obtaining these identifiers for

security tokens.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

The eligibility for specific types of prospectuses or relating documents (such as the secondary issuance prospectus, the

EU Growth prospectus, the base prospectus for non-equity securities or the universal registration document) will

depend on the specific types of transferable securities to which security tokens correspond, as well as on the type of

the issuer of those securities (i.e. SME, mid-cap company, secondary issuer, frequent issuer).

Article 16 of PR requires issuers to disclose risk factors that are material and specific to the issuer or the security, and

corroborated by the content of the prospectus.

ESMA’s guidelines on risk factors under the PR

assist national

competent authorities in their review of the materiality and specificity of risk factors and of the presentation of risk

factors across categories depending on their nature. The prospectus could include pertinent risks associated with the

underlying technology (e.g. risks relating to technology, IT infrastructure, cyber security, etc, ...). ESMA’s guidelines on

risk factors could be expanded to address the issue of materiality and specificity of risk factors relating to security

tokens.

Question 83. Do you agree that Delegated Regulation (EU) 2019/980 should

include specific schedules about security tokens?

Yes

Don’t know / no opinion / not relevant

83.1 If you do agree that Delegated Regulation (EU) 2019/980 should include

specific schedules about security tokens, please indicate the most effective

approach: a ‘building block approach’ (i.e. additional information about the

issuer and/or security tokens to be added as a complement to existing

schedules) or a ‘full prospectus approach’ (i.e. completely new prospectus

schedules

for

security

tokens).

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

A building block approach would suffice. Concerns may be related to “use of proceeds”, since this is not

typically covered in white papers concerning ICO’s (initial coin offerings). Consequently, one could legally

make Ponzi-like ICO’s complying with the PR, where it is not clear what will be the intended use of proceeds.

Question 84. Do you identify any issues in obtaining an ISIN for the purpose

of issuing a security token?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that CSD’s would be able to issue ISIN’s for security tokens and cannot

identify any issues on this matter.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 85. Have you identified any difficulties in applying special types of

prospectuses or related documents (i.e. simplified prospectus for secondary

issuances, the EU Growth prospectus, the base prospectus for non-equity

securities, the universal registration document) to security tokens that would

require amending these types of prospectuses or related documents?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

No. The DFSA has not meet any prospectuses concerning ICO’s or security tokens.

Question 86. Do you believe that an

ad hoc

alleviated prospectus type or

regime (taking as example the approach used for the EU Growth prospectus

or for the simplified regime for secondary issuances) should be introduced

for security tokens?

Yes

Don’t know / no opinion / not relevant

86.1 Please explain your reasoning for your answer to question 86:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 87. Do you agree that issuers of security tokens should disclose

specific risk factors relating to the use of DLT?

Completely agree

Rather agree

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

87.1 If you do agree that issuers of security tokens should disclose specific

risk factors relating to the use of DLT, please indicate if ESMA’s guidelines

risks

factors

should

amended

accordingly.

Please explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

ESMA’s guidelines on risk factors should only be amended if the ESMA finds a need to do so. In general

security tokens is a fairly new market and consequently it would be difficult to identify risks and draw up

regulatory guidance before the market is “live” and compliant with the general provisions. This should be

conducted on an ex post basis and only when the market risks has been thoroughly assessed.

5. Central Securities Depositories Regulation (CSDR)

CSDR

aims to harmonise the timing and conduct of securities settlement in the European Union and the rules for

central securities depositories (CSDs) which operate the settlement infrastructure. It is designed to increase the safety

and efficiency of the system, particularly for intra-EU transactions. In general terms, the scope of the CSDR refers to

the 11 categories of financial instruments listed under MiFID. However, various requirements refer only to subsets of

categories under MiFID.

Article 3(2) of CSDR requires that transferable securities traded on a trading venue within the meaning of MiFID II be

recorded in book-entry form in a CSD. The objective is to ensure that those financial instruments can be settled in a

securities settlement system, as those described by the Settlement Finality Directive (SFD). Recital 11 of CSDR

indicates that CSDR does not prescribe any particular method for the initial book-entry recording. Therefore, in its

advice, ESMA indicates that any technology, including DLT, could virtually be used, provided that this book-entry form

is with an authorised CSD. However, ESMA underlines that there may be some national laws that could pose

restrictions to the use of DLT for that purpose.

There may also be other potential obstacles stemming from CSDR. For instance, the provision of ‘Delivery versus

Payment’ settlement in central bank money is a practice encouraged by CSDR. Where not practical and available, this

settlement should take place in commercial bank money. This could make the settlement of securities through DLT

difficult, as the CSDR would have to effect movements in its cash accounts at the same time as the delivery of

securities on the DLT.

This section is seeking stakeholders’ feedback on potential obstacles to the development of security tokens resulting

from CSDR.

Question 88. Would you see any particular issue (legal, operational,

technical) with applying the following definitions in a DLT environment?

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

(not a

concern)

2 3 4

(strong

concern)

know /

opinion

strong

concern

Definition of 'central securities depository'

and whether platforms can be authorised as

a CSD operating a securities settlement

system which is designated under the SFD

Definition of 'securities settlement system'

and whether a DLT platform can be qualified

as securities settlement system under the

SFD

Whether records on a DLT platform can be

qualified as securities accounts and what can

be qualified as credits and debits to such an

account;

Definition of ‘book-entry form’ and

‘dematerialised form

Definition of settlement (meaning the

completion of a securities transaction where it

is concluded with the aim of discharging the

obligations of the parties to that transaction

through the transfer of cash or securities, or

both);

What could constitute delivery versus

payment in a DLT network, considering that

the cash leg is not processed in the network

What entity could qualify as a settlement

internaliser

88.1 Is there any other particular issue with applying the following definitions

DLT

environment

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

88.2 Please explain your reasoning for your answer to question 88:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government only sees a great concern on DVP-on the CSD. Since a lot of exchanges on crypto

assets makes it possible for investors to pay in kind (for example pay for one crypto asset with another

crypto asset), this would undermine the general delivery versus payment that is currently the practice in all

CSD-environments.

Question 89. Do you consider that the book-entry requirements under CSDR

are compatible with security tokens?

Yes

Don’t know / no opinion / not relevant

89.1 Please explain your reasoning for your answer to question 89:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

It should be possible to establish book-entry requirements for security tokens, but it could prove to be difficult.

Question 90. Do you consider that national law (e.g. requirement for the

transfer of ownership) or existing market practice in your jurisdiction would

facilitate or otherwise prevent the use of DLT solution?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Existing market practices in DK does not involve DLT-solutions. In order to secure the rightful owner of an

asset different regimes exists. If crypto assets were to be considered as financial instruments, the trading

and bookkeeping of these would have to comply with CSD-related provisions.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 91. Would you see any particular issue (legal, operational,

technical) with applying the current rules in a DLT environment?

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

(not a

concern)

2 3 4

(strong

concern)

know /

opinion

strong

concern

Rules on settlement periods for the

settlement of certain types of financial

instruments in a securities settlement system

Rules on measures to prevent settlement fails

Organisational requirements for CSDs

Rules on outsourcing of services or activities

to a third party

Rules on communication procedures with

market participants and other market

infrastructures

Rules on the protection of securities of

participants and those of their clients

Rules regarding the integrity of the issue and

appropriate reconciliation measures

Rules on cash settlement

Rules on requirements for participation

Rules on requirements for CSD links

Rules on access between CSDs and access

between a CSD and another market

infrastructure

91.1 Is there any other particular issue with applying the current rules in a

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

91.1 Is there any other particular issue with applying the current rules in a

DLT environment, (including other provisions of CSDR, national rules

applying the EU acquis, supervisory practices, interpretation, applications...)?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

91.2 Please explain your reasoning for your answer to question 91:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As stated above, there is no typically no requirement of DVP in crypto assets, which would be needed in

order for CSD’s to onboard them. There is a strong concerning in relation to all aspects of CSD’s and

safekeeping / custody. There is a great risk that issuers of crypto tokens would “opt out” of the EU-regulation

and seek listing outside EU-venues in order to bring down costs related to compliance. Since the market on

crypto assets is both diverse and fragmented and consisting on a lot of market participants subject to

different national regimes, it could proof difficult to onboard such venues on the existing EU-regimes

concerning financial instruments.

Question 92. In your Member State, does your national law set out additional

requirements to be taken into consideration, e.g. regarding the transfer of

ownership (such as the requirements regarding the recording on an account

with a custody account keeper outside a DLT environment)?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

6. Settlement Finality Directive (SFD)

The

Settlement Finality Directive

lays down rules to minimise risks related to transfers and payments of financial

products, especially risks linked to the insolvency of participants in a transaction. It guarantees that financial product

transfer and payment orders can be final and defines the field of eligible participants. SFD applies to settlement

systems duly notified as well as any participant in such a system.

The list of persons authorised to take part in a securities settlement system under SFD (credit institutions, investment

firms, public authorities, CCPs, settlement agents, clearing houses, system operators) does not include natural

persons. This obligation of intermediation does not seem fully compatible with the functioning of crypto-asset platforms

that rely on retail investors’ direct access.

Question 93. Would you see any particular issue (legal, operational,

technical) with applying the following definitions in the SFD or its

transpositions into national law in a DLT environment?

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

(not a

concern)

2 3 4

(strong

concern)

know /

opinion /

strong

concern

Definition of a securities settlement

system

Definition of system operator

Definition of participant

Definition of institution

Definition of transfer order

What could constitute a settlement

account

What could constitute collateral

security

93.1 Is there any other particular issue with applying the following definitions

in the SFD or its transpositions into national law in a DLT environment?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

93.2 Please explain your reasoning for your answer to question 93:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 94. SFD sets out rules on conflicts of laws. According to you, would

there be a need for clarification when applying these rules in a DLT network

(in particular with regard to the question according to which criteria the

location of the register or account should be determined and thus which

Member State would be considered the Member State in which the register or

account, where the relevant entries are made, is maintained)?

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 95. In your Member State, what requirements does your national

law establish for those cases which are outside the scope of the SFD rules

on conflicts of laws?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 96. Do you consider that the effective functioning and/or use of DLT

solution is limited or constrained by any of the SFD provisions?

Yes

Don’t know / no opinion / not relevant

96.1 If you do agree that the effective functioning and/or use of DLT solution

is limited or constrained by any of the SFD provisions, please provide

specific examples (e.g. provisions national legislation transposing or

implementing SFD, supervisory practices, interpretation, application,...).

Please explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government cannot foresee any legal issues in regard to SFD versus crypto assets. In general,

onboarding of crypto assets might result in a need to make further provisions or amendments to existing law,

in order to secure settlement.

7. Financial Collateral Directive (FCD)

The

Financial Collateral Directive

aims to create a clear uniform EU legal framework for the use of securities, cash and

credit claims as collateral in financial transactions. Financial collateral is the property provided by a borrower to a lender

to minimise the risk of financial loss to the lender if the borrower fails to meet their financial obligations to the lender.

DLT can present some challenges as regards the application of FCD. For instance, collateral that is provided without

distributed ledger

title transfer, i.e. pledge or other form of security financial collateral as defined in the FCD, needs to be enforceable in a

ECB Advisory Group on market infrastructures for securities and collateral, “the potential impact of DLTs on securities post-

trading harmonisation and on the wider EU financial market integration” (2017).

Question 97. Would you see any particular issue (legal, operational,

technical) with applying the following definitions in the FCD or its

transpositions into national law in a DLT environment?

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

(not a

concern)

2 3 4

(strong

concern)

know /

opinion

strong

concern

If crypto-assets qualify as assets that can be

subject to financial collateral arrangements

as defined in the FCD

If crypto-assets qualify as book-entry

securities collateral

If records on a DLT qualify as relevant

account

97.1 Is there any other particular issue with applying the following definitions

in the FCD or its transpositions into national law in a DLT environment?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

97.2 Please explain your reasoning for your answer to question 97:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

particular issue with applying these rules in a DLT network

Question 98. FCD sets out rules on conflict of laws. Would you see any

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 99. In your Member State, what requirements does your national

law establish for those cases which are outside the scope of the FCD rules

on conflicts of laws?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 100. Do you consider that the effective functioning and/or use of

DLT solution is limited or constrained by any of the FCD provisions?

Yes

Don’t know / no opinion / not relevant

100.1 Please explain your reasoning for your answer to question 100:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

8. European Markets Infrastructure Regulation (EMIR)

The

European Markets Infrastructure Regulation (EMIR)

applies to the central clearing, reporting and risk mitigation of

over-the-counter (OTC) derivatives, the clearing obligation for certain OTC derivatives, the central clearing by central

counterparties (CCPs) of contracts traded on financial markets (including bonds, shares, OTC derivatives, Exchange-

Traded Derivatives, repos and securities lending transactions) and services and activities of CCPs and trade

repositories (TRs).

The central clearing obligation of EMIR concerns only certain OTC derivatives. MiFIR extends the clearing obligation by

CCPs to regulated markets for exchange-traded derivatives. At this stage, however, the Commission services does not

have knowledge of any project of securities token that could enter into those categories.

A recent development has also been the emergence of derivatives with crypto-assets as underlying.

Question 101. Do you think that security tokens are suitable for central

clearing?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

101.1 Please explain your reasoning for your answer to question 101:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As stated above, the technology and the market is new and consequently it is difficult to draw any

conclusions in relation to central clearing. If a regulatory approach is made to include crypto assets in the

definition of financial instruments, this would force the market to adapt and comply with the rules on market

integrity etc. As stated above a problem may arise in relation to delivery-versus-payment, which would also

have spillover effects on central clearing.

Question 102. Would you see any particular issue (legal, operational,

technical) with applying the current rules in a DLT environment?

Please rate from 1 (not a concern) to 5 (strong concern)

Don’t

know /

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

(not a

concern)

2 3 4

(strong

concern)

opinion

strong

concern

Rules on margin requirements, collateral

requirements and requirements regarding the

CCP’s investment policy

Rules on settlement

Organisational requirements for CCPs and

for TRs

Rules on segregation and portability of

clearing members’ and clients’ assets and

positions

Rules on requirements for participation

Reporting requirements

102.1 Is there any other particular issue (including other provisions of EMIR,

national rules applying the EU acquis, supervisory practices, interpretation,

applications, ...) with applying the current rules in a DLT environment?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

102.2 Please explain your reasoning for your answer to question 102:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 103. Would you see the need to clarify that DLT solutions including

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Question 103. Would you see the need to clarify that DLT solutions including

permissioned blockchain can be used within CCPs or TRs?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As raised earlier, the Danish government finds that regulatory guidance should be provided to market

participants. In order for the market to prioritize and develop DLT-technology and technical solutions,

regulatory guidance is needed in order to mitigate legal risks in relation to compliance in their IT-architecture

etc.

Question 104. Would you see any particular issue with applying the current

rules to derivatives the underlying of which are crypto assets, in particular

considering

their

suitability

for

central

clearing?

Please explain your reasoning

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

9. The Alternative Investment Fund Directive

The

Alternative Investment Fund Managers Directive (AIFMD)

lays down the rules for the authorisation, ongoing

operation and transparency of the managers of alternative investment funds (AIFMs) which manage and/or market

alternative investment funds (AIFs) in the EU.

The following questions seek stakeholders’ views on whether and to what extent the application of AIFMD to tokens

could raise some challenges. For instance, AIFMD sets out an explicit obligation to appoint a depositary for each AIF.

Fulfilling this requirement is a part of the AIFM authorisation and operation. The assets of the AIF shall be entrusted to

the depositary for safekeeping. For crypto-assets that are not ‘security tokens’ (those which do not qualify as financial

instruments), the rules for ‘other assets’ apply under the AIFMD. In such a case, the depositary needs to ensure the

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

safekeeping (which involves verification of ownership and up-to-date recordkeeping) but not the custody. An uncertainty

can arguably occur whether the depositary can perform this task for security tokens and also whether the safekeeping

requirements can be complied with.

Question 105. Do the provisions of the EU AIFMD legal framework in the

following areas are appropriately suited for the effective functioning of DLT

solutions and the use of security tokens?

Please rate from 1 (not suited) to 5 (very suited)

Don’t

(not

suited)

2 3 4

(very

suited)

know /

opinion

very

suited

AIFMD provisions pertaining to the requirement to

appoint a depositary, safe-keeping and the

requirements of the depositary, as applied to

security tokens;

AIFMD provisions requiring AIFMs to maintain

and operate effective organisational and

administrative arrangements, including with

respect to identifying, managing and monitoring

the conflicts of interest;

Employing liquidity management systems to

monitor the liquidity risk of the AIF, conducting

stress tests, under normal and exceptional

liquidity conditions, and ensuring that the liquidity

profile and the redemption policy are consistent;

AIFMD requirements that appropriate and

consistent procedures are established for a

proper and independent valuation of the assets;

Transparency and reporting provisions of the

AIFMD legal framework requiring to report certain

information on the principal markets and

instruments.

105.1 Is there any other area in which the provisions of the EU AIFMD legal

framework are appropriately suited for the effective functioning of DLT

solutions

and

the

use

security

tokens?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Due to the uncertainty pertaining to aim of the question, the Danish government does not know how to best

answer the question. It is uncertain whether the question refers to the services provided by an AIFM, the

investment object/assets and/or something third (e.g. capital requirements). It is also uncertain what is

required for an effective usage of DLT solutions and security tokens. Consequently, it is not possible to

provide a clear-cut answer to the questions.

Today the AIFMD has difficulties handling all the different alternative investment opportunities (i.e. the

different types of assets). This is true for both for the AIFMs who have to manage the assets (portfolio

management of the fund(s), ensure proper valuation of the asset(s), risk management, liquidity and so on),

but also for NCAs who have to supervise the AIFMs and ensure compliance with AIFMD and the

Commissions Regulation.

Due these challenges, it is likely that the current provisions are less suited for regulating DLT solutions and

security tokens. Due to a lack of knowledge concerning the specific requirements for an effective usage and

regulation of DLT solutions and security tokens it is, however, not possible to provide an answer on which

specific provisions are appropriate for ensuring an effective usage and regulation of DLT solutions and

security tokens.

It is likely that decentralized nature of DLTs will hinder the NCAs supervision with AIFM. In its current form,

the AIFMD determine who is responsible. For example, a depositary is responsible for its tasks, but when

using DLTs, the task of a depositary is not centralized at one party, but many parties.

Additionally, the AIFMD lacks provisions that ensures investor protection. More and more retail investors are

turning to alternative investments which then hampers their protection when they turn their investments

towards the alternatives. Introducing DLT solutions and security tokens to AIFMD will add additional level of

risk when turning to alternative investments.

Lastly, the current provisions are likely not suitable for ensuring a level-playing field between “traditional

AIFMs” and “AIFMs who use DLT solutions and/security tokens”. This may lead to different approaches by

NCAs and then hamper the AIFMDs aim of providing an internal market for AIFMs and a harmonised and

stringent regulatory and supervisory framework for the activities within the Union.

105.2 Please explain your reasoning for your answer to question 105:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Please see the answer for Question 105.1.

Question 106. Do you consider that the effective functioning of DLT solutions

and/or use of security tokens is limited or constrained by any of the AIFMD

provisions?

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

provisions?

Yes

Don’t know / no opinion / not relevant

106.2 Please explain your reasoning for your answer to question 106:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

As was the case under question 105, it is uncertain whether the question refers to services, investment object

/assets and/or something third.

Due to a lack of knowledge concerning the requirements for an effective usage and regulation of DLT

solutions and security tokens it is not possible to provide an answer on which specific provisions are limiting

the effective usage and regulation of DLT solutions and security tokens. A more general answer is therefore

only possible.

Please see question 105.1.

10. The Undertakings for Collective Investment in Transferable Securities Directive

(UCITS Directive)

The

UCITS Directive

applies to UCITS established within the territories of the Member States and lays down the rules,

scope and conditions for the operation of UCITS and the authorisation of UCITS management companies. The UCITS

directive might be perceived as potentially creating challenges when the assets are in the form of ‘security tokens’,

relying on DLT.

For instance, under the UCITS Directive, an investment company and a management company (for each of the

common funds that it manages) shall ensure that a single depositary is appointed. The assets of the UCITS shall be

entrusted to the depositary for safekeeping. For crypto-assets that are not ‘security tokens’ (those which do not qualify

as financial instruments), the rules for ‘other assets’ apply under the UCITS Directive. In such a case, the depositary

needs to ensure the safekeeping (which involves verification of ownership and up-to-date recordkeeping) but not the

custody. This function could arguably cause perceived uncertainty where such assets are security tokens.

Question 107. Do the provisions of the EU UCITS Directive legal framework in

the following areas are appropriately suited for the effective functioning of

DLT solutions and the use of security tokens?

Please rate from 1 (not suited) to 5 (very suited)

Don’t

(not

suited)

2 3 4

(very

suited)

know /

opinion

very

suited

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Provisions of the UCITS Directive pertaining to

the eligibility of assets, including cases where

such provisions are applied in conjunction with

the notion “financial instrument” and/or

“transferable security”

Rules set out in the UCITS Directive pertaining to

the valuation of assets and the rules for

calculating the sale or issue price and the

repurchase or redemption price of the units of a

UCITS, including where such rules are laid down

in the applicable national law, in the fund rules or

in the instruments of incorporation of the

investment company;

UCITS Directive rules on the arrangements for

the identification, management and monitoring of

the conflicts of interest, including between the

management company and its clients, between

two of its clients, between one of its clients and a

UCITS, or between two -UCITS;

UCITS Directive provisions pertaining to the

requirement to appoint a depositary, safe-keeping

and the requirements of the depositary, as

applied to security tokens;

Disclosure and reporting requirements set out in

the UCITS Directive.

107.1 Is there any other area in which the provisions of the EU UCITS

Directive legal framework are appropriately suited for the effective

functioning of DLT solutions and the use of security tokens?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government has no opinion on the question due to the uncertainty of how to understand the

question. See for example the answer to question 105.

107.2 Please explain your reasoning for your answer to question 107:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government has no opinion on the question due to the uncertainty of how to understand the

question. See for example the answer to question 105.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

11. Other final comments and questions as regards tokens

It appears that permissioned blockchains and centralised platforms allow for the trade life cycle to be completed in a

manner that might conceptually fit into the existing regulatory framework. However, it is also true that in theory trading

in security tokens could also be organised using permissionless blockchains and decentralised platforms. Such novel

ways of transacting in financial instruments might not fit into the existing regulatory framework as established by the EU

acquis for financial markets.

Question 108. Do you think that the EU legislation should provide for more

regulatory flexibility for stakeholders to develop trading and post-trading

solutions using for example permissionless blockchain and decentralised

platforms?

Yes

Don’t know / no opinion / not relevant

108.1 If you do think that the EU legislation should provide for more

regulatory flexibility for stakeholders to develop trading and post-trading

solutions using for example permissionless blockchain and decentralised

platforms, please explain the regulatory approach that you favour. Please

explain your reasoning.

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The current status of national efforts in DK is “wait and see” as no greater risks has been identified yet in

relation to DLT and crypto assets. The market is still underdeveloped and the Danish goverment is not

aware of any market participants engaged in the development of DLT-technology in relation to trading and

post-trading solutions. The Danish government finds that regulatory flexibility and the provision of regulatory

guidance would be able to incentivize the market to develop. Regulatory approached might involve

sandboxes, where technology can be tested decentralized in order to mitigate risks to the rest of the market.

This would be beneficial for market participants in order to lower the costs on compliance and in order to

secure, that their product developments follow regulatory guidance before launch.

Question 109. Which benefits and risks do you see in enabling trading or

post-trading processes to develop on permissionless blockchains and

decentralised platforms?

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

See above.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Blockchain systems work in a fundamentally different way compared to the current trading and post-trading

architecture. Tokens can be directly traded on blockchain and after the trade almost instantaneously settled following

the validation of the transaction and its addition to the blockchain. Although existing EU acquis regulating trading and

post-trading activities strives to be technologically neutral, existing regulation reflects a conceptualisation of how

financial market currently operate, clearly separating the trading and post-trading phase of a trade life cycle. Therefore,

trading and post-trading activities are governed by separate legislation which puts distinct requirements on trading and

post-trading financial infrastructures.

Question 110. Do you think that the regulatory separation of trading and post-

trading activities might prevent the development of alternative business

models based on DLT that could more efficiently manage the trade life cycle?

Yes

Don’t know / no opinion / not relevant

110.2 Please explain your reasoning for your answer to question 112:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 111. Have you detected any issues beyond those raised in previous

questions on specific provisions that would prevent effectively applying

EU regulations to security tokens and transacting in a DLT environment, in

particular as regards the objective of investor protection, financial stability

and market integrity?

Yes

Don’t know / no opinion / not relevant

111.1 Please provide specific examples and explain your reasoning for your

answer to question 111:

5000 character(s) maximum

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

Question 112. Have you identified national provisions in your jurisdictions

that would limit and/or constraint the effective functioning of DLT solutions

or the use of security tokens?

Yes

Don’t know / no opinion / not relevant

112.1 Please provide specific examples (national provisions, implementation

of EU acquis, supervisory practice, interpretation, application, ...) and explain

your reasoning for your answer to question 112:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

N/A

C. Assessment of legislation for ‘e-money’ tokens

Electronic money (e-money) is a digital alternative to cash. It allows users to make cashless payments with money

stored on a card or a phone, or over the internet. The

e-money directive (EMD2)

sets out the rules for the business

practices and supervision of e-money institutions.

its advice on crypto-assets, the EBA noted

that national competent authorities reported a handful of cases where

payment tokens could qualify as e-money, e.g. tokens pegged to a given currency and redeemable at par value at any

time. Even though such cases may seem limited, there is merit in ensuring whether the existing rules are suitable for

these tokens. In that this section, payments tokens, and more precisely “stablecoins”, that qualify as e-money are called

‘e-money tokens’ for the purpose of this consultation. Consequently, firms issuing such e-money tokens should ensure

they have the relevant authorisations and follow requirements under EMD2.

Beyond EMD2, payment services related to e-money tokens would also be covered by the

Payment Services Directive

(PSD2)

. PSD2 puts in place comprehensive rules for payment services, and payment transactions. In particular, the

Directive sets out rules concerning a) strict security requirements for electronic payments and the protection of

consumers’ financial data, guaranteeing safe authentication and reducing the risk of fraud; b) the transparency of

conditions and information requirements for payment services; c) the rights and obligations of users and providers of

payment services.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

The purpose of the following questions is to seek stakeholders’ views on the issues they could identify for the

application of the existing regulatory framework to e-money tokens.

Question 113. Have you detected any issue in EMD2 that could constitute

impediments to the effective functioning and/or use of e-money tokens?

Yes

Don’t know / no opinion / not relevant

113.1 Please provide specific examples (EMD2 provisions, national

provisions, implementation of EU acquis, supervisory practice, interpretation,

application, ...) and explain your reasoning for your answer to question 113:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The definition of electronic money in art. 2(2) requires that the monetary value represent a claim against the

issuer. At the same time art. 11(2) requires electronic money issuers to redeem upon request from the

electronic money holder. This creates an opportunity for issuers to design a token that in the terms of

agreement states that it does not represent a claim against the issuer (e.g. Libra). Thus, the token would not

constitute electronic money.

The difference between the different types of electronic money is, that the functionality of electronic money

issued as a crypto-asset is independent of the issuer as soon as it is issued - but the value, and therefore

the acceptance by third-parties, is not. This also raise concerns for the compatibility of the current definition

of e-money to decentralized business models. Decentralized issuers would not easily be covered by the

EMD2, due to the fact that an issuing entity (legal or physical) would not always be identifiable.

A solution could be to remove "represented by a claim on the issuer" from art. 2(2).

Question 114. Have you detected any issue in PSD2 which would constitute

impediments to the effective functioning or use of payment transactions

related to e-money token?

Yes

Don’t know / no opinion / not relevant

114.1 Please provide specific examples (PSD2 provisions, national

provisions, implementation of EU acquis, supervisory practice,

interpretation, application, ...) and explain your reasoning for your answer to

question 114:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

Due to the way most blockchains currently function, the information requirements in chapter 3 in PSD2 can

be difficult to adhere to. This issue is also discussed in relation to the FATF standards on the travel rule.

Question 115. In your view, do EMD2 or PSD2 require legal amendments and

/or supervisory guidance (or other non-legislative actions) to ensure the

effective functioning and use of e-money tokens?

Yes

Don’t know / no opinion / not relevant

115.1 Please provide specific examples and explain your reasoning for your

answer to question 115:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

The Danish government finds that the 2% ongoing capital requirement, might be unnecessary for fully

collateralized e-money token issuance, where such funds are segregated and safeguarded.

The safeguarding requirements as of now, don't allow decentralized issuance of e-money tokens as smart

contracts such as CDPs does not fulfill the requirement

Under EMD 2, electronic money means “

electronically, including magnetically, stored monetary value as represented

by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions [...], and

which is accepted by a natural or legal person other than the electronic money issuer

”. As some “stablecoins” with

global reach (the so-called “global stablecoin”) may qualify as e-money, the requirements under EMD2 would apply.

Entities in a “global stablecoins” arrangement (that qualify as e-money under EMD2) could also be subject to the

provisions of PSD2. The following questions aim to determine whether the EMD2 and/or PSD2 requirements would be

fit for purpose for such “global stablecoins” arrangements that could pose systemic risks.

Question 116. Do you think the requirements under EMD2 would be

appropriate for “global stablecoins” (i.e. those that reach global reach)

qualifying as e-money tokens?

Please rate from 1 (completely inappropriate to 5 (completely appropriate)

Don’t

know /

(completely

inappropriate)

2 3 4

(completely

appropriate)

opinion

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

very

suited

Initial capital and ongoing funds

Safeguarding requirements

Issuance

Redeemability

Use of agents

Out of court complaint and

redress procedures

116.1 Is there any other requirement under EMD2 that would be appropriate

for

“global

stablecoins”?

Please specify which one(s) and explain your reasoning:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Question 116 needs to be elaborated. See answer to Question 115.

116.2 Please explain your reasoning for your answer to question 116:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

Question 117. Do you think that the current requirements under PSD2 which

are applicable to e-money tokens are appropriate for “global stablecoins” (i.

e. those that reach global reach)?

Completely agree

Rather agree

Neutral

Rather disagree

Completely disagree

Don’t know / no opinion / not relevant

117.1 Please explain your reasoning for your answer to question 117:

100

EUU, Alm.del - 2019-20 - Bilag 546: Notat og høringssvar vedr. svar på EU-Kommissionens offentlige høring om kryptoaktiver

117.1 Please explain your reasoning for your answer to question 117:

5000 character(s) maximum

including spaces and line breaks, i.e. stricter than the MS Word characters counting method.

So-called ‘stablecoins’ and ‘global stablecoins’ can have very different properties. Some have properties

similar to financial instruments, some may have no financial properties, and some may have properties

similar to e-money. It is not possible to give a unified answer to the question above.

In cases where a crypto-asset is deemed to be e-money and therefore funds - the requirements are suitable.

But there are some issues that needs to be addressed, especially as regards decentralized issuance of e-

money tokens e.g. the requirements under chapter 3 in PSD2 and chargeback rules.

Additional information

Should you wish to provide additional information (e.g. a position paper,

report) or raise specific points not covered by the questionnaire, you can

upload your additional document(s) here:

The maximum file size is 1 MB.

You can upload several files.

Only files of the type pdf,txt,doc,docx,odt,rtf are allowed

Useful links

More on the Transparency register (http://ec.europa.eu/transparencyregister/public/homePage.do?locale=en)

More on this consultation (https://ec.europa.eu/info/publications/finance-consultations-2019-crypto-assets_en)

Specific privacy statement (https://ec.europa.eu/info/law/better-regulation/specific-privacy-statement_en)

Consultation document (https://ec.europa.eu/info/files/2019-crypto-assets-consultation-document_en)

Contact

[email protected]

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