The European Union and Cryptocurrency

Europe

I. EU Member States

The European Union Cryptocurrency Laws

Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology

On July 5, 2016, the European Commission presented a legislative proposal to amend the Fourth Anti-Money Laundering Directive (AMLD).[120] It suggested, inter alia, bringing custodian wallet providers and virtual currency exchange platforms within the scope of the AMLD, meaning they would be obligated to fulfill due diligence requirements and have in place policies and procedures to detect, prevent, and report money laundering and terrorist financing. The proposal contains a definition of virtual currencies, which are described 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 transferred, stored or traded electronically.”[121] On January 29, 2018, the text agreed at the interinstitutional negotiations of the European Parliament and the Council was approved in committee. The European Parliament adopted the text in plenary session on April 19, 2018.[122] The updated Directive will enter into force three days after its publication in the Official Journal of the European Union.

Furthermore, on March 8, 2018, the European Commission presented an Action Plan on how to take advantage of the opportunities presented by technology-enabled innovation in financial services (FinTech), like blockchain, artificial intelligence, and cloud services.[123] The FinTech Action Plan includes the recently launched EU Blockchain Observatory and Forum, which will report on the challenges and opportunities of crypto assets later in 2018 and is working on a comprehensive strategy on distributed ledger technology and blockchain addressing all sectors of the economy.[124]

On October 22, 2015, the European Court of Justice (ECJ) held in its decision Hedqvist that transactions to exchange a traditional currency for bitcoin or other virtual currencies and vice versa constitute the supply of services for consideration, but fall under the exemption from value-added-tax (VAT).[125] Buying or selling bitcoin is therefore exempt from VAT in all EU Member States.

On February 12, 2018, the European Supervisory Authorities for securities (ESMA), banking (EBA), and insurance and pensions (EIOPA) jointly issued a warning to consumers regarding virtual currencies, stating that they are “highly risky and unregulated products and are unsuitable as investment, savings or retirement planning products.”[126] The warning complements the earlier two statements by ESMA on initial coin offerings (ICOs) in November 2017[127] and a warning to consumers and two opinions on virtual currencies by EBA in December 2013, July 2014, and August 2016, respectively.[128] EBA welcomes the decision of the European Commission to bring custodian wallet providers and virtual currency exchange platforms within the scope of the Fourth AMLD and not to extend the EU Payment Services Directive 2015/2366 to virtual currency transactions for the time being.[129] EBA suggests a separate regulatory regime to mitigate all the risks arising from virtual currencies.[130]

The President of the European Central Bank (ECB), Mario Draghi, warned that bitcoin and other digital currencies are “very risky assets” due to their high volatility and speculative prices.[131] He stated that “digital currencies are not subject to a specific supervisory approach,” but that “[w]ork is under way in the Single Supervisory Mechanism[[132]] to identify potential prudential risks that these digital assets could pose to supervised institutions.”[133]  In addition, in December 2016, the ECB and the Bank of Japan (BOJ) launched a joint research project named “Stella,” which looks at the possible use of distributed ledger technology for financial market infrastructures.[134]

Is cryptocurrency legal in The European Union?

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120] Proposal for a Directive of the European Parliament and of the Council Amending Directive (EU) 2015/849 on the Prevention of the Use of the Financial System for the Purposes of Money Laundering or Terrorist Financing and Amending Directive 2009/101/EC, COM (2016) 450 final (July 5, 2016), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016PC0450&from=EN, archived at http://perma.cc/D4NP-V5UA.

[121] Id. at 30.

[122] Press Release, European Parliament, Anti-money Laundering: MEPs Vote to Shed Light on the True Owners of Companies (Apr. 19, 2018), http://www.europarl.europa.eu/news/en/press-room/20180411IPR01527/anti-money-laundering-meps-vote-to-shed-light-on-the-true-owners-of-companies, archived at https://perma.cc/ZZQ4-HQ36.

[123] Communication From the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. FinTech Action Plan: For a More Competitive and Innovative European Financial Sector, COM (2018) 109 final (Mar. 8, 2018), http://eur-lex.europa.eu/resource.html?uri=cellar:6793c578-22e6-11e8-ac73-01aa75ed71a1.0001.02/DOC_1&format=PDF, archived at http://perma.cc/F7NP-YPCP.

[124] Id.; Press Release, European Commission, European Commission Launches the EU Blockchain Observatory and Forum (Feb. 1, 2018), http://europa.eu/rapid/press-release_IP-18-521_en.htm, archived at http://perma.cc/Q4GD-LX6P.

[125] Case C-264/14, Skatteverket v. David Hedqvist, ECLI:EU:C:2015:718, http://curia.europa.eu/juris/celex.jsf? celex=62014CJ0264&lang1=en&type=TXT&ancre, archived at http://perma.cc/7Q6Q-MM9V.

[126] European Supervisory Authorities, WARNING. ESMA, EBA and EIOPA Warn Consumers on the Risks of Virtual Currencies (Feb. 12, 2018), https://www.eba.europa.eu/documents/10180/2139750/Joint+ESAs+ Warning+on+Virtual+Currencies.pdf, archived at http://perma.cc/EAH5-XTZE.

[127] ESMA, STATEMENT. ESMA Alerts Firms Involved in Initial Coin Offerings (ICOs) to the Need to Meet Relevant Regulatory Requirements (Nov. 2017), https://www.esma.europa.eu/sites/default/files/library/esma50-157-828_ico_statement_firms.pdf, archived at http://perma.cc/5PL8-WZ4K; ESMA, STATEMENT. ESMA Alerts Investors to the High Risks of Initial Coin Offerings (ICOs), Nov. 2017, https://www.esma.europa.eu/sites/ default/files/library/esma50-157-829_ico_statement_investors.pdf, archived athttp://perma.cc/3KXT-FNFD.

[128] EBA, Warning to Consumers on Virtual Currencies (Dec. 2013), https://www.eba.europa.eu/documents/10180/ 598344/EBA+Warning+on+Virtual+Currencies.pdf, archived at http://perma.cc/QL4M-ZLXW; EBA, EBA Opinion on ‘Virtual Currencies’, July 4, 2014, http://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf, archived at http://perma.cc/9P9W-A3KT; EBA, Opinion of the European Banking Authority on the EU Commission’s Proposal to Bring Virtual Currencies into the Scope of Directive (EU) 2015/849 (4AMLD), Aug. 11, 2016, https://www.eba.europa.eu/documents/10180/1547217/EBA+Opinion+on+ the+Commission%E2%80%99s+proposal+to+bring+virtual+currency+entities+into+the+scope+of+4AMLD, archived athttp://perma.cc/SF65-HA37.

[129] EBA, Opinion of the European Banking Authority on the EU Commission’s Proposal to Bring Virtual Currencies into the Scope of Directive (EU) 2015/849 (4AMLD), supra note 128, nos. 8 & 16.

[130] Id. no. 19.

[131] Mario Draghi, President of the ECB, Introductory Statement and Closing Remarks at the European Parliament Plenary Debate on the ECB Annual Report for 2016 (Feb. 5, 2018), https://www.ecb.europa.eu/press/key/date/ 2018/html/ecb.sp180205.en.html, archived at http://perma.cc/M6WX-T3RR.

[132] The Single Supervisory Mechanism refers to the system of banking supervision that comprises the ECB and the national supervisory authorities of the participating countries, see Single Supervisory Mechanism, ECB, https://www.bankingsupervision.europa.eu/about/thessm/html/index.en.html (last visited Mar. 20, 2018), archived athttp://perma.cc/M2ST-SE3H.

[133] Draghi, supra note 131131.

[134] BOJ/ECB Joint Research Project on Distributed Ledger Technology, ECB & BOJ (Sept. 6, 2017), https://www.ecb.europa.eu/paym/intro/news/shared/20170906_stella_report_leaflet.pdf, archived at http://perma.cc/27QZ-ST83.