The Government of the EU is creating a uniform legislation on cryptocurrency

September 26, 2020
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The European Commission has published draft regulations of cryptocurrencies
Photo: Adobe Stock
The European Commission has published a draft regulation on the regulation of the cryptocurrency market. The main objective is to create a common legal framework for the use of cryptographic assets in the European Union. This project is part of the EU’s overall strategy for digital finance.

The authors of the project emphasise that the proposals are intended to make the financial sector transparent at the legislative level. The preliminary text of the regulations is published on the official website of the European Commission.

The Regulation provides for 4 main innovations.

  1. The EU government will issue passports to companies that create or use cryptocurrency. Such a passport is equivalent to an official license to operate in any EU country.
  2. The new regulations will set stricter requirements for cryptographic companies. In particular, the changes will apply to companies producing cryptocurrencies at a fixed rate. Obligatory conditions have been developed for them: e.g. a share capital of 350 000 € and a paper currency reserve to back up digital assets.
  3. Cryptocurrency companies will be required to publish regular reports and submit them to investors and regulators.
  4. The European Banking Authority and the European Central Bank are authorised to audit companies if they are in doubt about the legality of their actions.

Uniform legislation will help develop a legal cryptographic market in the EU. This will have a positive impact on the opportunities for investors who prefer to keep their funds in the cryptocurrency.

What are the problems with the cryptocurrency of programme participants

In our experience, 10-15% of investors are interested in participating in a citizenship or residence permit programme with assets in cryptocurrency. Many also want to transfer payments under the programme in the cryptocurrency.

Today, some programmes, as an exception, accept assets in the cryptocurrency. It is not possible to make calculations in the cryptocurrency under investment programmes. We explain in more detail.

The stages of the programme which relate to the use of cryptocurrency:

  1. The investor confirms that the required amount is available. If the funds are in cryptocurrency, it is not a problem to confirm the required amount.

  2. To check the Due Diligence, the Investor confirms the legality of the origin of the funds. In other words, the investor shows how he received the funds for which he purchased the cryptocurrency 一 this is a more complex process of preparing documents.

  3. The investor pays for the investment, fees and duties that are stipulated in the terms and conditions of the programme. Today, the banks through which the investor makes payments under the programme do not have mechanisms for accepting payments in the cryptocurrency.

Therefore, an investor may only use assets in cryptocurrency in the first and second cases – to confirm solvency and legality of income.

Past attempts to integrate the crypt into programmes

Governments have already tried to accept payments in the cryptocurrency.

Vanuatu was the first country to invite investors to invest in Bitcoins in 2017. In 2018, the Department of Citizenship Programme of Antigua and Barbuda also announced the introduction of a payment mechanism in cryptocurrency. 

The payment mechanism did not appear in the cryptocurrency after the fact. The investor converts the cryptocurrency into euros or dollars. Then transfers funds to the currency account from which he pays for participation in the programme.

The law will simplify participation in citizenship programmes for investments

We believe that the introduction of a unified legal framework will expand investor opportunities. We are talking about entrepreneurs who will buy cryptocurrency from companies with passports issued by the EU government.

Firstly, it will be easier for the programme participant to prove the legality of assets. Today EU banks are checking the legality of funds that are involved in transactions. The results of bank Due Diligence are taken into account by the departments of all investment programmes. Therefore, licensed cryptographic companies will also use control mechanisms. The results of their checks will also be taken into account.

Secondly, certification and control of cryptocurrency will involve the creation of mechanisms for settlement and conversion. Investors will be able to make payments under the programmes in cryptocurrency.

Therefore, once the law is passed, it will be easier for cryptocurrency holders to participate in citizenship and residence permit programmes for investments. The number of potential participants in the programmes will increase.

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