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In September 2020, the European Commission published a new digital finance package, comprising a digital finance strategy, a retail payments strategy, legislative proposals for an EU regulatory framework on crypto-assets, and proposals for an EU regulatory framework on digital operational resilience. The finance package was formed on basis of a mission statement that, “The future of finance is digital”, with the European Commission seeking to establish an innovative digital single market for finance that will benefit Europeans and will be key to Europe's economic recovery in the wake of the Covid-19 crisis.

In these pages we will be exploring the key proposals in this package, and will include materials offering practical tips, market-leading insights and comparative pan-EU reflections to enable firms to understand the key implications of these far-reaching proposals for them and their future business. Allen & Overy has been recognised in Band 1 in the Chambers Fintech Legal Guide 2020 and the Legal 500 UK 2021 Fintech chapter.

Our insights

Key proposals

Digital Operational Resilience Regulation (termed DORA)

As part of its Digital Finance Strategy, the European Commission has published a draft Digital Operational Resilience Regulation, termed DORA. The draft regulation (alongside a draft amending directive) aims to enhance the operational integrity of all EU “financial entities”, including banks and other financial institutions, insurance/reinsurance undertakings and intermediaries, and fund managers.

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DORA establishes a single legislative framework for all financial entities, and will require such firms to consider carefully issues of governance and their contractual arrangements with third-party IT service providers. In addition to having significant implications for the IT policies and practices of these regulated financial entities, DORA will also have implications for the unregulated IT service providers to whom they outsource functions. For the first time, certain designated critical IT third-party service providers will be directly regulated by European Supervisory Authorities.

Markets in Crypto-Assets Regulation (MiCA)

The European Commission has proposed two regulations – the Markets in Crypto-Assets Regulation (MiCA) and the pilot regime for market infrastructures using distributed ledger technology (MiDLT). The EU is proposing a far reaching regulatory regime for crypto assets, which will bring many crypto players within regulation for the first time.

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MiCA sets out requirements around the need to prepare 'white papers' to accompany the issuance of crypto-assets. It also introduces a licensing regime for crypto issuers and other service providers (for example, crypto exchanges, trading platforms and custodians/wallet providers), in relation to a very wide range of crypto assets, including bitcoin, ether, utility tokens, e-money tokens and asset-referenced tokens, as well as a change-in-control regime and market abuse rules. Crypto-assets already regulated as financial instruments, electronic money, deposits, structured deposits or securitisations are exempt. MiCA raises a number of significant issues, including an apparent appetite to apply heavier regulation to crypto assets than to equivalent instruments (such as e-money) off the blockchain.

Finally, as part of the proposed EU’s MiDLT pilot, investment firms and market operators can apply for permission to run multilateral trading facilities (MTFs) and central securities depositories (CSDs) operating securities settlement systems (SSSs) using distributed ledger technology (DLT). Such DLT MTFs and CSDs operating DLT SSSs will enable the trading and post-trading for DLT transferable securities.

We will be producing content and materials on these developments over the coming months. If these changes are likely to affect your business, please get in touch with one of the team below or your usual A&O contact.

DORA establishes a single legislative framework for all financial entities, and will require such firms to consider carefully issues of governance and their contractual arrangements with third-party IT service providers. In addition to having significant implications for the IT policies and practices of these regulated financial entities, DORA will also have implications for the unregulated IT service providers to whom they outsource functions. For the first time, certain designated critical IT third-party service providers will be directly regulated by European Supervisory Authorities.

MiCA sets out requirements around the need to prepare 'white papers' to accompany the issuance of crypto-assets. It also introduces a licensing regime for crypto issuers and other service providers (for example, crypto exchanges, trading platforms and custodians/wallet providers), in relation to a very wide range of crypto assets, including bitcoin, ether, utility tokens, e-money tokens and asset-referenced tokens, as well as a change-in-control regime and market abuse rules. Crypto-assets already regulated as financial instruments, electronic money, deposits, structured deposits or securitisations are exempt. MiCA raises a number of significant issues, including an apparent appetite to apply heavier regulation to crypto assets than to equivalent instruments (such as e-money) off the blockchain.

Finally, as part of the proposed EU’s MiDLT pilot, investment firms and market operators can apply for permission to run multilateral trading facilities (MTFs) and central securities depositories (CSDs) operating securities settlement systems (SSSs) using distributed ledger technology (DLT). Such DLT MTFs and CSDs operating DLT SSSs will enable the trading and post-trading for DLT transferable securities.

We will be producing content and materials on these developments over the coming months. If these changes are likely to affect your business, please get in touch with one of the team below or your usual A&O contact.

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