For the latest episode of Blockchain Policy Matters, Bitcoin Association Founding President Jimmy Nguyen caught up with Pēteris Zilgalvis, Head of Unit, Digital Innovation and Blockchain, Digital Single Market Directorate at DG CONNECT, a branch of the European Commission.
Zilgalvis is also the co-chair of the European Commission’s Fintech Task Force, with responsibility for concerns on the digital single market side, i.e., the non-financial services applications of tokens and blockchains.
A senior official with remit for blockchain policy throughout the European Union, Zilgalvis spoke about the scope of his work, and the aims and policy objectives of the European Commission in working to shape the regulatory framework for blockchain policy across the bloc.
In the third episode of Blockchain Policy Matters, we were joined by @PZilgalvis – Head of Unit, Digital Innovation and Blockchain at DG Connect, @EU_Commission for a wide-ranging discussion on digital asset regulation in Europe.https://t.co/FHJzs2D9Ka
— Bitcoin Association (@BitcoinAssn) May 21, 2021
The interview begins with an explanation from Zilgalvis of his role, and the many and varied projects he is overseeing as part of his work at the Digital Single Market Directorate. Formerly the Digital Single Market, the agency works to create common market conditions across the 27 Member States of the European Union, in a process designed to streamline inconsistencies and allow for easy passporting of tokens and other associated services across the block.
Zilgalvis said his role was to pull down barriers to scale and operability across the trading bloc, with a number of projects underway to address these issues, including Startup Europe, a project aimed at making it easier for startups in the space, through to the EU Blockchain Observatory Forum, which presents workshops and resources for those looking to learn more about blockchain technology.
Other projects under Zilgalvis’ remit include the European Blockchain Partnership, the European Blockchain Services Infrastructure, and legislative work in helping formulate policy. In summary, Zilgalvis says his concerns are around innovation, infrastructure, legislation, standardization and skills within the blockchain space.
Nguyen asked Zilgalvis to dig deeper on standardization, and the role for the development of technical standards, citing the BSV enterprise blockchain as one of the few blockchains to be working to set leading recommendations for encouraging interoperability across the ecosystem.
Zilgalvis agreed that standardization had an important role to play, a view shared by the work of the European Commission. He said the Commission was being driven by the needs of the market to ensure low barriers to entry, as well as standardization across technical bases. Notably, Zilgalvis said there was a role for governmental organizations in circumstances where industry perhaps had perverse incentives, citing the example of companies who may benefit from proprietary technology, rather than from operating in open environments.
He said the role of the commission was to ensure consumers and citizens of the token economy could move freely between different platforms, creating a sense of competition unrestricted by the boundaries of narrow commercial interest. He said the commission was working on an as-yet-unannounced standardization strategy, led by industry, to deliver greater interoperability, rather than the walled gardens that might spring up in an unmanaged sector.
He likened the challenge to the dawn of the Internet, and the approach taken there where openness and collaboration was harnessed to develop the technology. This is the approach favored by the commission in the development of blockchain policy across the region.
For proponents of the BSV blockchain, one of the key requirements of a blockchain fit to scale to global mass adoption is that governments, regulated interests and companies feel comfortable with the technology from a regulatory standpoint. Zilgalvis said this is where Markets in Crypto Assets (MICA) legislation comes into play, providing the legal certainty so craved by companies in the sector.
The MICA regulations deal specifically with non-securities tokens, which are outright securities are regulated under MIFID across the bloc. In scope, MICA was set up to remove the gray areas around other non-securities tokens, and to provide a regulated footing for operators to work from with alternative digital currency assets—things like utility tokens, payment tokens and stablecoins.
Zilgalvis said the work on MICA was part of the commission’s digital finance strategy to tackle fragmentation, identify new challenges and their corresponding risks. He said the idea of MICA is based on an approach of “wait and see.” The Commission engaged early with industry in a supportive and active observing role over blockchain and other decentralized technologies. The commission wanted to observe in-depth the financial ecosystem and how blockchain was impacting it, before drafting specific regulations.
MICA regulations were drawn up in 2020, in response to calls emerging from the digital currency asset community for greater regulation. Zilgalvis says there was a strong preference in the sector for regulation in order to bring legitimacy, so that operators were able to secure bank accounts, raise finance and generally participate in the mainstream economy.
He described how MICA removes the uncertainty—nothing is a grey area any longer, with securities governed by MIFID, and everything else falling under the parameters of MICA.
Zilgalvis said it was important to the commission to develop a risk-based framework, with a sliding scale of regulatory requirements in response to gradients of risk. Riskier activities are subject to a higher threshold of regulation, whereas at the lower end of the risk scale, much more limited regulation is required.
He gave the example of straightforward utility tokens—under MICA, these don’t require a prospectus until they are dealing with values of over €1 million, at which point a simple prospectus and approval will suffice. At the opposite end of the scale comes tokens like Facebook’s Diem, which has the potential to impact wider financial stability on account of its sheer size and likely scale of usage.
He told Nguyen of the need to ensure easy passporting of tokens and blockchain services across the bloc, with MICA establishing the level playing field between different member states and different laws.
Asked on the timeline for implementation, he said he expects the measures to be implemented fairly soon. While there are some remaining political interests to express their views, especially about global stablecoins like Diem, the overall reception to the principles of the regulations has been positive, and he foresees no barriers to implementation.
Zilgalvis went on to discuss the role of regulatory sandboxes in helping innovators develop new products, working alongside regulators to deliver more fertile ground for new technologies and applications.
The full interview provides an insight into the thinking at the highest level of the European Commission around policy matters affecting the bloc, which could in turn come to influence policy discussions elsewhere in the world.
You can find episode three of Blockchain Policy Matters on Bitcoin Association’s YouTube channel.
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