The European Commission has launched two public consultations to form regulations on digitalisation in the financial sector. Through them, the Commission plans to "promote digital finance in Europe, while adequately regulating its risks", reads the consultation document.
The first consultation invites opinions on the suitability of the existing regulatory framework for crypto-assets, and the second asks for ways to improve the existing legislative framework to ensure that the financial sector can deal with cyber-attacks and other risks that are associated with the digital transformation.
"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," read the document.
This public consultation and the parallel consultation are the primary steps to prepare potential initiatives planned by the Commission.
This effort is an extension of the EU's earlier efforts to regulate the handling of data and payment processes, said Kaspersky principal security researcher David Emm.
"In recent years, the EU has sought to regulate the handling of data and payment processes through GDPR and PSD2 respectively. I'm sure the aim here is to extend this to the specific area of crypto-assets - to provide a definition of what these are and to create a framework that enables companies to take advantage of the technology while protecting the interests of EU citizens," he told SC Media UK.
Regulation on the digitisation of financial services was long overdue, observed Joseph Carson, chief security scientist at Thycotic.
"This was always going to happen at some point. It appears now that with more crypto-currencies being used and the blockchain hype behind us, the Commission has decided that a framework is needed to bring a shared understanding that will include crypto-currencies in the future digital economy," he told SC Media UK.
The consultation document has four sections. The first seeks the views of all EU citizens on the use or potential use of crypto-assets, while the other three mostly address public authorities, financial market participants as well as market participants in the crypto-asset sector regarding whether and how to classify crypto-assets, and on crypto-assets that currently fall within and outside the scope of the EU financial services legislation.
The wider adoption of crypto-currencies makes it impossible to ignore, while the lack of regulation around it raises concerns around security. However, the use of crypto-currencies by cyber-criminals is just one issue, said Kaspersky’s Emm.
Speculation, illegal crypto-mining and attacks on exchanges are other equally serious issues of concern, he said. Thycotic’s Carson agrees.
"Malicious actors abusing cryptocurrencies are not the only factor and it is among many other abuses such as ICO’s (initial coin offering), fraud, and misinterpretations," he said.
Both rejected the notion that there will be attempts to ban or nationalise crypto-currencies.
"That would have a major negative impact to the global economies. It is more likely that it will be regulated with laws that will reduce fraud as well as abuse – and at the same time, bring better standards," said Carson.
"I don't believe that there will be an attempt to ban the use of crypto-currency, or to develop exclusive use of it. It seems clear from the consultation document that the EU is keen to embrace the technologies, but sees a need to define the various aspects and provide a stable framework for their use," said Emm.