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Pathways to European Policy and Regulation in the Crypto-economy

Published online by Cambridge University Press:  10 September 2019

Iris H-Y CHIU*
Affiliation:
Professor of Corporate Law and Financial Regulation, University College London, email: uctlhc0@ucl.ac.uk.

Abstract

The EU has yet to develop definitive policies for the crypto-economy, and this article argues that policy development should follow a “systemic” and not “sectoral” approach. This is because the crypto-economy is not merely a financialised space and new productive activity is occurring that would benefit from more holistic policy development than regulation focused on securities and investments. This article proposes that the EU should develop policy for the crypto-economy based more broadly on innovation policy and perhaps feed into the Single Market project.

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Articles
Copyright
© Cambridge University Press 2019

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References

1 There is extensive discussion that crypto-currencies are not currency as they do not really work as a store of value or unit of account, and that even if treated as “assets”, their price volatility greatly impairs their desirability, see for example BIS Annual Economic Report 2018, “Cryptocurrencies – Looking Beyond the Hype”, Part V at <www.bis.org/publ/arpdf/ar2018e5.pdf>.

2 In an earlier work, I look at substitutability as a key aspect of whether we should consider a novel trend as “disruptive”: see IH-Y Chiu, “Fintech and Disruptive Business Models in Financial Products, Intermediation and Markets – Policy Implications for Financial Regulators” (2016) 21 Journal of Technology Law and Policy 168.

3 Mark Carney, in a letter as Chair of the Financial Stability Board to the G20 Finance ministers and central bankers, 13 March 2018 at <www.fsb.org/wp-content/uploads/P180318.pdf>.

5 “Crypto-token sales and market statistics”, available at <www.coinschedule.com/stats-geo/ALL?dates=Feb%2001,%202019%20to%20Apr%2026,%202019>, providing details of popular jurisdictions and funds raised from token sales by time periods, geography etc.

6 See “Best Bitcoin and Cryptocurrency Exchange Reviews” at <www.buybitcoinworldwide.com/exchanges/>.

7 See <www.binance.com/>; according to coinmarketcap.com, over US$14bn was being traded on Binance as of 26 April 2019, see <coinmarketcap.com/exchanges/binance/>.

9 Such as the EU Commission’s Fintech action plan, EU Commission Communication, FinTech Action plan: For a More Competitive and Innovative European Financial Sector (2018) and European Banking Authority, Report with Advice for the European Commission on Crypto-assets (January 2019) at <eba.europa.eu/documents/10180/2545547/EBA+Report+on+crypto+assets.pdf>.

10 Such as the establishment of the EU Blockchain Observatory and Forum, at <www.eublockchainforum.eu/>.

11 A critique against legalisation in the EU in C Joerges, “Europe’s Economic Constitution in Crisis” (2013) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2179595>.

12 PF Kjaer, “European Crises of Legally-Constituted Public Power: From the ‘Law of Corporatism’ To The ‘Law Of Governance’” (2017) 23 European Law Journal 417.

13 G Majone, “The Rise of the Regulatory State in Europe” (1994) 17 West European Politics 77; D Muggë, “From Pragmatism to Dogmatism: European Union Governance, Policy Paradigms and Financial Meltdown” (2011) 16 New Political Economy 185.

14 P Zumbansen, “Spaces and Places: A Systems Theory Approach to Regulatory Competition in European Company Law” (2006) 12 European Law Journal CHK.

15 Finck, M, Blockchain Governance and Regulation in Europe (Cambridge, Cambridge University Press 2018)CrossRefGoogle Scholar; Kraus, D et al (eds), Blockchains, Smart Contracts, Decentralised Autonomous Organisations and the Law (Cheltenham, Edward Elgar 2019)CrossRefGoogle Scholar.

16 There is no movement towards international convergence in regulatory policy for the crypto-economy, but the Financial Stability Board carries out a survey and monitoring function, see FSB, Crypto-asset Markets (2018) at <www.fsb.org/wp-content/uploads/P101018.pdf>.

17 UK’s Crypto-assets Task Force Report (2018), at <assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752070/cryptoassets_taskforce_final_report_final_web.pdf>, para 1.5. The report points out ongoing research and thinking about the crypto-economy and blockchain technology more holistically, but seems to indicate that policy urgency is driven by the rise in crypto-assets coming to unregulated markets.

18 The lens of innovation policy is explored in Section IV. It is also noted that a more “holistic” agenda for regulatory thinking in the crypto-economy is urged by the EBA, supra, note 9.

19 See Perez, C, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Cheltenham, Edward Elgar 2002)CrossRefGoogle Scholar.

20 S Nakamoto, “Bitcoin: A Peer to Peer Electronic Cash System” (2008) at <bitcoin.org/bitcoin.pdf>.

21 Ie anyone who wished to connect his/her computer to the blockchain.

22 New value can be created on the blockchain by performing maintenance tasks based on cryptographic validation, ie the performance of those tasks leads to reward in value that can be used on the blockchain.

23 This is because the blockchain relies on a system of decentralised work of verification and validation that is aimed at being tamper-proof.

24 M Kenney and J Zysman, “The Rise of the Platform Economy” (2016) Issues in Science and Technology 61 which sees digital platforms as offering new business models, at <www.nbp.pl/badania/seminaria/25x2016_2.pdf>.

25 Friedman, TL, The World is Flat (Farrar, Straus and Giroux 2005)Google Scholar; Hadfield, G, Rules for a Flat World (Oxford: Oxford University Press 2016)Google Scholar.

26 The distributed ledger is a concept whereby all nodes maintain the same copy of transactions and last-done status of the ledger, so that all records are immutable, indelible and cannot be arbitrarily adjusted. This is described as “trustless trust” but see limitations discussed in K Werbach, “Trust, But Verify: Why the Blockchain Needs the Law” (2018) 33 Berkeley Tech Law Journal 489.

28 These are pieces of code or algorithms designed to execute certain commands if certain conditions are met, resulting in the execution or formation of legal obligations, hence “smart contracts”, see N Szabo, “Smart Contracts: Building Blocks for Digital Markets”, University of Amsterdam (1996), <www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html>, and layman’s version at <www.coindesk.com/information/ethereum-smart-contracts-work>.

29 There is a lot of literature mapping the universe of ICOs, see S Adhami et al, “Why do Businesses Go Crypto? An Empirical Analysis of Initial Coin Offerings” (2018) 100 Journal of Economics and Business 64; D Zetzsche et al, “The ICO Gold Rush: It’s a Scam, it’s a Bubble, it’s a Super Challenge for Regulators” (2017) <ssrn.com/abstract=3072298>.

30 This was discussed in relation to a variety of areas such as clearing and settlement, ESMA, The Distributed Ledger Technology Applied to Securities Markets (Discussion Paper, June 2016); A Pinna and W Ruttenberg, “Distributed Ledger Technologies in Securities Post-Trading” (ECB Working Paper 2016); DS Evans, “Economic Aspects of Bitcoin and Other Decentralized Public-Ledger Currency Platforms” (2014) <ssrn.com/abstract=2424516>. On shareholder voting see C van der Elst, “Blockchain and Smart Contracting for the Shareholder Community” (2018) <papers.ssrn.com/sol3/papers.cfm?abstract_id=3219146>. On management of networks such as supply chains, see K Kopela et al, “Digital Supply Chain Transformation toward Blockchain Integration” (2017) at <scholarspace.manoa.hawaii.edu/bitstream/10125/41666/paper0517.pdf>. Also DLT can be used to create records in order to prevent tampering, such as in relation to food aid and distribution in Africa, see <www.coindesk.com/un-food-program-to-expand-blockchain-testing-to-african-supply-chain>.

31 Discussed below. This is the term initially used for crypto-token sales, but the terminology has moved on to distinguish between token sales and ICOs, as the former may be private sales and not open to the public. The more generic description of token sales may also be intended to disengage association with initial public/securities offerings.

32 See the statistics mentioned, supra, note 4.

33 A Alexandre, “New Study Says 80 Percent of ICOs Conducted in 2017 Were Scams” (2018) at <cointelegraph.com/news/new-study-says-80-percent-of-icos-conducted-in-2017-were-scams>.

34 B Buchwalter, “Decrypting Cryptoassets: A Classication And Its Implications” (2019) at <ssrn.com/abstract=3271641>.

35 P Hacker and C Thomale, “Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law” (2018) ECFR 645; Zetzsche et al, supra, note 29; J Rohr and A Wright, “Blockchain-Based Token Sales, Initial Coin Offerings, and the Democratization of Public Capital Markets” (2017) at <ssrn.com/abstract=3048104> amongst others.

36 Lee, D (ed), The Handbook of Digital Currencies (Elsevier 2015)Google Scholar.

37 WA Kaal, “Crypto-Economics- The Top 100 Token Models Compared” (2018) at <ssrn.com/abstract=3249860>.

38 U Rodrigues, “Semi-Public Offerings? Pushing the Boundaries of Securities Law” (2018) at <ssrn.com/abstract=3242205>.

39 Buchwalter, supra, note 34.

40 Zetzsche et al, supra, note 29.

42 Epstein, GA (ed), Financialization and the World Economy (Cheltenham: Edward Elgar 2005)Google Scholar at p 3 defines this term to mean the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the economies.

43 Almost a thousand ICOs were recorded between March 2018 and January 2019, raising over US$18 bn: see <www.coinschedule.com/stats>.

44 R Brownsword, “Regulatory Fitness: Fintech, Funny Money, and Smart Contracts” (2019) 20 European Business Organisations Law Review 5.

45 Also taken in the US, and the UK FCA has clarified the regulatory perimeter, defending but not extending its regulatory scope, see FCA, Guidance on Cryptoassets: Policy Statement (July 2019) at <www.fca.org.uk/publication/policy/ps19-22.pdf>.

46 Such as securities defined for the purposes of the Prospectus Regulation 2017, which are highly tied to corporate forms and a certain understanding of market tradeability or liquidity.

47 For example UCITs as retail investment funds regulated in the EU UCITs Directive 2009 defines such funds in relation to investing in transferable securities, so such a retail investment product is tied to “securities” which as noted above, are defined by their technologies of origination and liquidity.

48 Hacker and Thomale, supra, note 35; IM Barsan, “Legal Challenges of Initial Coin Offerings (ICO)” (2017) 3 RTDF 54.

49 The trend of new commodification that has been made possible by digitalisation is discussed in M Cherry, “Cyber Commodification” (2013) 72 Maryland Law Review 381.

50 Competition in the energy sector, such as in the UK has long been a challenging issue, see for example, Competition in the UK’s Electricity Market (2016) at <assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/556310/Electricity_competition.pdf>, showing that entrenched players (the Big 6 companies) continue to take over 80% of market share, although new and smaller players are challenging such a trend gradually.

51 See <wepower.network/>. Indeed peer-to-peer energy trading is growing in a number of Continental countries, see eg T Morstyn et al, “Using Peer-To-Peer Energy-Trading Platforms to Incentivize Prosumers to Form Federated Power Plants” (2018) 3 Nature Energy; J Giles, “Giles, Jodie. “Peer to Peer Trading and Microgrids – the next Big Thing?” Regen, 21 February 2018, at <www.regen.co.uk/peer-to-peer-trading-and-microgrids-the-next-big-thing/>; D Shipworth,“Peer-to-Peer Energy Trading Using Blockchains” DSM Spotlight The Newsletter of the International Energy Agency Demand-Side Management Programme, No 67, December 2017, pp 5–9, at <www.ieadsm.org/wp/files/IEA-DSM-Spotlight-Issue67-December20171.pdf>.

52 See <iungo.network/>.

53 See <golem.network/>.

54 See <cappasity.com/>.

55 See <www.madana.io/>.

56 JM Barnett, “The Costs of Free: Commodification, Bundling and Concentration” (2017) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2916859>.

57 Sundarajan, A, The Sharing Economy (MIT Press 2016)Google Scholar; A Killeen, “The Confluence of Bitcoin and the Global Sharing Economy” in Lee, supra, note 36, ch 24.

58 See much more extensive discussion in A Keay, “Shareholder Primacy in Corporate Law: Can it Survive? Should it Survive?” (2010) 7 European Company and Financial Law Review 369. At the global level, shareholder primacy is argued to be the dominant model of the corporate economy: H Hansmann and R Kraakman, “The End of History for Corporate Law” (2000) 89 Georgetown Law Journal 439.

59 J Ikerd, “Sustainable Capitalism: A Matter of Ethics and Morality” (2008) 3 Problems of Sustainable Development 13; G Baars, “‘Reform or Revolution’? Polanyian Versus Marxian Perspectives on the Regulation of The Economic” (2011) 62 NILQ 415; Boldeman, L, The Cult of the Market (ANU Press 2007)Google Scholar generally.

60 See the vision in P De Filippi, “Translating Commons-Based Peer Production Values into Metrics: Toward Commons-Based Cryptocurrencies” in Lee, supra, note 36, ch 23.

61 Because of the successes of many early ICOs, many business proposals that are framed as ICOs chase after the hype but are not necessarily unique to being powered by distributed ledger technology. See “A Failed ICO is Trying to Flog Itself on Ebay” (Financial Times, 25 March 2019) at <ftalphaville.ft.com/2019/03/25/1553498702000/A-failed-ICO-is-trying-to-flog-itself-on-eBay-/>.

62 Finck, supra, note 15.

63 Möslein, F, “Legal Boundaries of Blockchain Technologies: Smart Contracts as Self-Help?” in De Franceschi, A et al (eds), Digital Revolution – New Challenges for Law (Cambridge, Intersentia 2019)Google Scholar.

64 S Green, “Smart Contracts : Interpretation and Rectification” (2018) LMCLQ 234.

66 Queried in EU Blockchain Observatory and Forum Workshop Report, Legal Recognition of Blockchains & Smart Contracts (2018).

67 Queried in A Walch, “Deconstructing ‘Decentralization’: Exploring the Core Claim of Crypto Systems” (2019) at <ssrn.com/abstract=3326244>; M Tarasiewicza and A Newman, “Cryptocurrencies as Distributed Community Experiments” in Lee, supra, note 36, ch 10. See also K Yeung, “Regulation by Blockchain: The Emerging Battle for Supremacy between the Code of Law and Code as Law” (2019) Modern Law Review (forthcoming); Hacker, P, “Corporate Governance for Complex Cryptocurrencies? A Framework for Stability and Decision Making in Blockchain‐Based Organizations” in Hacker, P et al (eds), Regulating Blockchain: Techno‐Social and Legal Challenges (Oxford, Oxford University Press 2019) p 16Google Scholar.

68 de Fillippi, P and Wright, A, Blockchain and the Law (Mass, Harvard University Press 2018)CrossRefGoogle Scholar ch 9.

69 Finck, supra, note 15.

70 Supra, note 66.

71 Supra, note 67.

72 Relating to how creation of wealth should be distributed.

73 FinTech Action Plan, supra, note 9.

74 EBA, Report with Advice to the European Commission on Cryptoassets (December 2018) at <eba.europa.eu/documents/10180/2545547/EBA+Report+on+crypto+assets.pdf>.

75 ESMA, The Distributed Ledger Technology Applied to Securities Markets (Discussion Paper, June 2016); Pinna and Ruttenberg, supra, note 30.

76 ibid.

77 See discussion in text below.

78 The UK’s regulatory sandbox regime is discussed in IH-Y Chiu, “A Rational Regulatory Strategy for Governing Financial Innovation” (2017) 8 EJRR 743.

79 DA Zetzsche et al, “Regulating a Revolution: From Regulatory Sandboxes to Smart Regulation” (2017) 23 Fordham Journal of Corporate and Financial Law 31.

80 Delemarle, A and Laredo, P, “Governing Radical Change” in Borras, S and Edler, J (eds), The Governance of Socio-technical Systems: Explaining Change (Cheltenham, Edward Elgar 2014) at ch 8.Google Scholar

81 Discussed in Tömmel, I, “Modes of Governance and the Institutional Structures in the EU” in Tömmel, I and Verdun, A (eds), Innovative Governance in the European Union (Colorado, Lynne Reiner 2009)Google Scholar ch 2; A Caviedes and W Mass (eds), “Sixty-five Years of European Governance” (2016) 12(1) Journal of Contemporary European Research; DM Trubek and LG Trubek, “New Governance & Legal Regulation: Complementarity, Rivalry, and Transformation” (2006) 13 Columbia Journal of European Law 2.

82 “Libra: Facebook’s Digital Currency” (Financial Times, 31 July 2019) at <www.ft.com/content/0c5c4012-9100-11e9-b7ea-60e35ef678d2>.

83 As there is great mobility in the crypto-economy, regulatory competition can matter. See for a theoretical discussion, Bratton, W et al (eds), International Regulatory Competition and Coordination: Perspectives on Economic Regulation in Europe and the United States (Oxford, Clarendon 1997)Google Scholar ch 1 on how the mobility of incorporating entities matters for real regulatory competition.

84 Girasa’s, RRegulation of Cryptocurrencies and Blockchain Technologies: National and International Perspectives (Palgrave 2018)CrossRefGoogle Scholar or books on bitcoin, such as Franco’s, PUnderstandng Bitcoin (John Wiley & Sons 2014)Google Scholar.

85 “How FINMA’s ICO Guidelines impact future ICOs in Switzerland” (KPMG, 26 February 2018) at <https://home.kpmg/ch/en/blogs/home/posts/2018/02/finma-ico-guidelines.html>. Also see D Zelic and N Baros, “Cryptocurrency: General Challenges of Legal Regulation and the Swiss Model of Regulation” paper presented at 33rd International Scientific Conference on Economic and Social Development – “Managerial Issues in Modern Business” Warsaw, 26–27 September 2018.

87 FCA, supra, note 45.

89 The Uniform Act potentially covers all forms of tokens, as well-circulated tokens such as bitcoin and ether are arguably as much a “medium of exchange” or “unit of account” as the native coin of a distributed ledger business that has made an ICO. The width of interpretation of both “virtual currency” and “virtual currency business” could cover ICOs themselves, as well as intermediaries that facilitate transfer, trading or custody of tokens. However, this width of interpretation can only be sustained if tokens are definitively not securities or commodities.

90 The SEC’s approach is focused on making “coherentist” interpretations of token offerings in relation to the definition of “security”, see above, Clayton’s response to Ted Budd, at <coincenter.org/files/2019-03/clayton-token-response.pdf>, SEC, “Statement on Digital Asset Securities Issuance and Trading” (16 November 2018) at <www.sec.gov/news/public-statement/digital-asset-securites-issuuance-and-trading>.

91 The CFTC is also focused on interpreting the nature of crypto activities to determine if they fall within its jurisdictional scope, see CFTC, “CFTC Staff Issues Advisory for Virtual Currency Products” (21 May 2018) at <www.cftc.gov/PressRoom/PressReleases/7731-18>.

92 SEC, Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO (25 July 2017) at <www.sec.gov/litigation/investreport/34-81207.pdf>.

93 “Company Halts ICO After SEC Raises Registration Concerns” (11 December 2017) at <www.sec.gov/news/press-release/2017-227>; “Two ICO Issuers Settle SEC Registration Charges, Agree to Register Tokens as Securities” (16 November 2018) at <www.sec.gov/news/press-release/2018-264>.

94 US Commodity Exchange Act 7 USC § 2a(1)(A)–(C).

95 CFTC, “Customer Advisory: Use Caution When Buying Digital Coins or Tokens” (July 2018) at <www.cftc.gov/sites/default/files/2018-07/customeradvisory_tokens0718.pdf>.

96 CFTC v My Big Coin Pay Inc (26 September 2018) at <www.cftc.gov/sites/default/files/2018-10/enfmybigcoinpayincmemorandum092618.pdf>.

97 See decision above, where Justice Zabel refers to the definition of “commodity” in the Commodity Exchange Act in order to determine the nature of My Big Coin and found in favour of the CFTC’s argument that My Big Coin is a commodity.

98 Commentators have noted that over the years, although the CFTC’s jurisdiction has broadened over all sorts of commodities, there is also a rise in the liberation of trading in their derivatives. Hence inclusion within the scope of “commodity” is not the same as achieving a prohibitive effect, see Balmer, AG, Regulating Financial Derivatives (Cheltenham, Edward Elgar 2018)CrossRefGoogle Scholar ch 8; C Muellerleile, “Speculative Boundaries: Chicago and the Regulatory History of US Financial Derivative Markets” (2015) 47 Environment and Planning 1805.

99 “CFTC Orders Bitcoin Exchange Bitfinex to Pay $75,000 for Offering Illegal Off-Exchange Financed Retail Commodity Transactions and Failing to Register as a Futures Commission Merchant” (2 June 2016) at <www.cftc.gov/PressRoom/PressReleases/pr7380-16>.

100 In the Matter of Coinflip, Inc., d/b/a Derivabit, and) Francisco Riordan and the CFTC (17 September 2015) at <www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf>.

101 Baker McKenzie, “A Complete Guide to Cryptocurrencies and ICOs in Thailand” at <www.bakermckenzie.com/-/media/files/insight/publications/2018/09/bk_thailand_completeguidecryptoicos_sep18.pdf?la=en>.

102 Action Plan for Business Growth and Transformation Act (passed on 11 April 2019), summary found at <www.amf-france.org/en_US/Reglementation/Dossiers-thematiques/Fintech/Vers-un-nouveau-regime-pour-les-crypto-actifs-en-France>.

103 “China Officially Bans All Crypto-Related Commercial Activities” (August 2018) at <bitcoinist.com/china-officially-bans-crypto-activities/>.

104 “China Bans All Crypto Events After Spending $3 Billion to Fund Blockchain Startups” (22 August 2018) at <www.newsbtc.com/2018/08/22/china-bans-all-crypto-events-after-spending-3-billion-to-fund-blockchain-startups/>.

105 See Shen, W, Shadow Banking in China: Risk, Regulation and Policy (Cheltenham, Edward Elgar 2016)CrossRefGoogle Scholar chs 5–9.

106 “Why South Korea had to ban crypto-ICOs” (2 March 2019) <www.ccn.com/why-south-korea-ban-crypto-ico-risk-billion-dollars>.

107 “South Korea to ban crypto-currency traders from using anonymous bank accounts” (23 January 2018) at <www.reuters.com/article/us-southkorea-bitcoin/south-korea-to-ban-crypto-currency-traders-from-using-anonymous-bank-accounts-idUSKBN1FC069>.

108 EBA, supra, note 74.

109 S Maijoor speech, “Cryptoassets: Time to Deliver” (26 February 2019).

110 ibid.

111 Brownsword, supra, note 44.

112 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 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 Directives 2009/138/EC and 2013/36/EU, Arts 2(1)(g), 3(18) and Preamble paras 8–10.

113 See B Morgan and D Kuch, “Radical Transactionalism: Legal Consciousness, Diverse Economies, and the Sharing Economy” (2015) 42 Journal of Law and Society 556.

114 H Deng et al, “The Regulation of Initial Coin Offerings in China: Problems, Prognoses and Prospects” (2018) 19 EBOR 465.

115 T Bourveau et al, “Initial Coin Offerings: Early Evidence on the Role of Disclosure in the Unregulated Crypto Market” (2018) at <ssrn.com/abstract=3193392>.

116 Sophisticated investors and their financial intermediaries are usually exempted from a wide range of retail customer duties and protection, under the Markets in Financial Instruments Directive, Art 24.

117 For the appetite of institutional investors to diversify into cryptos, which some already regard as an asset class, see L Lin and D Nestacorva, “Venture Capital in the Rise of Crypto Economy: Problems and Prospects” (2019) 16 Berkeley Business Law Journal (forthcoming) and “What We Learnt from 100 Crypto-talks with Institutional Investors” (2019) at <www.coindesk.com/what-we-learned-in-100-crypto-asset-talks-with-institutional-investors>.

118 FCA, Consumer Attitudes and Awareness of Cryptoassets: Research Summary (March 2019) at <www.fca.org.uk/publications/research/consumer-attitudes-and-awareness-cryptoassets-research-summary>.

119 Speculative and risky finance is a Minskian trajectory, see H Minsky, “The Financial Instability Hypothesis” (Levy Institute Working Paper 1992) at <www.levyinstitute.org/pubs/wp74.pdf>, also Avgouleas, E, “Regulating Financial Innovation: A Multifaceted Challenge to Financial Stability, Consumer Protection, and Growth” in Moloney, N et al (eds), Oxford Handbook of Financial Regulation (Oxford, Oxford University Press 2015)Google Scholar.

120 A general warning sounded in M Mazzucato and C Perez, “Innovation as Growth Policy: The Challenge for Europe” (2014) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2742164>.

122 See the EBA, ESMA, EIOPA and ESRB Regulations, infra.

123 J de Larosière et al, Report by the High Level Group on Financial Supervision in the EU (Brussels, 25 February 2009) <https://ec.europa.eu/economy_finance/publications/pages/publication14527_en.pdf>.

124 Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies amended in 2011, 2013.

125 Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

126 Busch, D, “A Stronger Role for the European Supervisory Authorities in the EU27” in Busch, D et al (eds), The Capital Markets Union in Europe (Oxford, Oxford University Press 2019)Google Scholar ch 3.

127 Section II.

128 FCA, “Consumer warning about the risks of investing in crypto-currency CFDs” (November 2017) at <www.fca.org.uk/news/news-stories/consumer-warning-about-risks-investing-crypto-currency-cfds>; FCA, “Cryptoassets” (7 March 2019) at <www.fca.org.uk/consumers/cryptoassets>; “ESAs warn consumers of risks in buying virtual currencies” (12 February 2018) at <eba.europa.eu/-/esas-warn-consumers-of-risks-in-buying-virtual-currencies>.

129 For example the FCA conducted research to show that few consumers understand crypto-currencies or assets and not many participate in these markets, but such a survey need not be “educational” for consumers, see FCA, supra, note 118.

130 These are their legislative remits under their respective founding Regulations.

131 FinTech Action Plan, supra, note 9.

132 Supra.

133 EBA, Advice on New Prudential Framework for Investment Firms (September 2017) at <eba.europa.eu/-/eba-issues-opinion-on-the-design-of-a-new-prudential-framework-for-investment-firms>, which has now been introduced into legislation, see Parliament’s press release in April 2019, at <europa.eu/rapid/press-release_IP-19-2130_en.htm?locale=en>.

134 Supra, note 109.

135 ibid.

136 This means that the regulatory perimeter was no longer determined according to the label of the institution concerned, such as being a bank, insurance or securities firm, but extended to any institution that is carrying out any of the activities of a functionally equivalent nature. See UK Financial Services Authority’s exemplification of this approach, FSA v Anderson & Others [2010] EWHC 599 (Ch).

137 Markets in Financial Instruments Directive 2014, Art 17.

138 Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC, Arts 46-48, 64-66 on payment initiation service providers’ duties and responsibilities, Arts 33, 69, 97 for account information service providers, for example.

139 FinTech Action Plan, supra, note 9.

140 N Cortez, “Regulating Disruptive Innovation” (2014) 29 Berkeley Technology Law Journal 175.

141 EBA, supra, note 9.

142 See <ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union_en> for the 2015 initiative and the regulatory output delivered pursuant to this initiative.

143 Discussed earlier, also see Weismann, P, European Agencies and Risk Governance in EU Financial Market Law (Oxford, Routledge 2016)CrossRefGoogle Scholar.

144 See Andenas, M and Chiu, IH-Y, The Foundations and Future of Financial Regulation (Oxford, Routledge 2014)Google Scholar.

145 See <ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union/capital-markets-union-action-plan/financing-innovation-start-ups-and-non-listed-companies_en> which comprises the Capital Markets Union initiatives to address small business financing such as by dedicated investment fund structures and the regulation of online crowdfunding platforms.

146 Such as the Cayman Islands and the British Virgin Islands.

147 C Joerges, “The European Economic Constitution and its Transformation through the Financial Crisis” (2015) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2560245>.

148 J Flood and L Robb, “Trust, Anarcho-Capitalism, Blockchain and Initial Coin Offerings” (2017) at <ssrn.com/abstract=3074263>.

149 G Wood and A Buchanan, “Advancing Egalitarianism” in Lee, supra, note 36, ch 19.

150 Mainly in relation to how the single currency entailed implications for fiscal discipline and the stringency of post-crisis fiscal rules for countries that needed financial rescue, see Amtenbrink, F, “New Economic Governance in the European Union: Another Constitutional Battleground?” in Purnhagen, K and Rott, P (eds), Varieties of European Economic Law and Regulation: Liber Amicorum for Hans Micklitz (Heidelberg, Springer 2014)Google Scholar ch 11; A de Streel, “The Evolution of the EU Economic Governance since the Treaty of Maastricht: an Unfinished Task” (2013) 20 Maastrict Journal 3.

151 D Muggë, “From Pragmatism to Dogmatism: European Union Governance, Policy Paradigms and Financial Meltdown” (2011) 16 New Political Economy 185; M Everson, “A Technology of Expertise: EU Financial Services Agencies” (LSE Working Papers 2012).

152 PF Kjaer, “European Crises of Legally-Constituted Public Power: From the ‘Law of Corporatism’ To The ‘Law Of Governance’” (2017) 23 European Law Journal 417.

153 W Munchau, “The Unsustainable Unbreakable Eurozone” (Financial Times, 28 April 2019) looking at the unsustainability of managing European countries’ fiscal crises sustainably for the future.

154 Muggë, supra, note 151; Fabbrini, S, “Beyond Intergovernmentalism: The Puzzle of European Economic Governance” in Rodrigues, MJ and Xiarchogiannopoulou, E (eds), The Eurozone Crisis and the Transformation of the EU Governance: External And Internal Implications (Aldershot, Ashgate 2014)Google Scholar ch 4.

155 HE Aldrich and CM Fiol, “Fools Rush in? The Institutional Context of Industry Creation” (1994) 19 Academy of Management Review 645, discussing how unfamiliarity (in a more social and cognitive sense) entails institutional and political distrust of innovation.

156 BIS Annual Economic Report 2018, supra, note 1.

157 Tokens are offered for crypto-currency such as bitcoin or ether in return.

158 The EU Commission continues to appeal to the asset management industry for example, in relation to developing sustainable finance, see proposals in EU High Level Expert Group on Sustainable Finance (HLEG), Financing a Sustainable European Economy (HLEG (2018)).

159 Regulation (EU) 2015/760 of the European Parliament and of the Council of 29 April 2015 on European long-term investment funds.

160 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds.

161 Regulation (EU) No 345/2013 of the European Parliament and of the Council of 17 April 2013 on European venture capital funds.

162 E Monnet et al, “Europe between Financial Repression and Regulatory Capture” (Bruegel Working Paper 2014) at <bruegel.org/wp-content/uploads/imported/publications/WP_2014_08_.pdf>. The dominance of the industry’s influence on financial sector governance and policy is also discussed in Mooschlechner, P et al (eds), The Political Economy of Financial Market Regulation (Cheltenham, Edward Elgar 2006)CrossRefGoogle Scholar; S Pagliari, “Who Governs Finance? The Shifting Public-Private Divide in the Regulation of Derivatives, Rating Agencies and Hedge Funds” (2012) 18 European Law Journal 44.

163 P Zumbansen, “Spaces and Places: A Systems Theory Approach to Regulatory Competition in European Company Law” (2006) 12 European Law Journal 534.

164 Such as co-determination in Germany, but contrast with the UK where company law is insularly focused on shareholder-management relations, leaving labour to contractual systems. See Hall, PA and Soskice, D, “An Introduction to Varieties of Capitalism” in Hall, PA and Soskice, D (eds), Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (Oxford, Oxford University Press 2001)CrossRefGoogle Scholar ch 1.

165 For example, the French have an industrial policy to support national champions, but the UK has engaged in systematic privatisation since the 1980s.

166 Different jurisdictions provide different creditor rights vis-à-vis companies, and recent developments – such as the Dutch approach of broking covenants between firms and government in order to ensure that firms do not engage in abuses in their supply chain – are different from other jurisdictions, such as the UK’s approach that leave supply chain governance to largely contractual governance but subject to skeletal forms of disclosure: Modern Slavery Act 2015, s 54.

167 Zumbansen, supra, note 163.

168 M Siems, “Convergence in Corporate Governance: A Leximetric Approach” (2010) 35 Journal of Corporation Law 729; C Gerner-Beuerle, “Determinants of Corporate Governance Codes” (2014) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=2346673>.

169 JG Hill, “Good Activist/Bad Activist: The Rise of International Stewardship Codes” (2018) 41 Seattle University Law Review 497.

170 G Goto, “The Logic and Limits of Stewardship Codes: The Case of Japan” (2019) Berkeley Business Law Journal (forthcoming).

171 Carney, supra, note 3.

172 Nakamoto, supra, note 20.

173 WM Peaster, “Crypto & Blockchain Exchange-Traded Funds (ETFs) Launching in Europe” (March 2019) at <blockonomi.com/crypto-blockchain-etfs-europe/>.

174 Ie by brokers who intermediate exchange, and potential abuses: see N Gunningham, “Private Ordering, Self-regulation and Futures Markets: A Comparative Study of Informal Social Control” (1991) 13 Law and Policy 297.

175 Fidelity, the asset manager, intends to provide crypto custodial services: see M Leising and A Marsh, “Fidelity Is Said to Plan March Launch of Bitcoin Custody Service” (Bloomberg January 2019) at <www.bloomberg.com/news/articles/2019-01-29/fidelity-is-said-to-plan-march-launch-of-bitcoin-custody-service>; JP Morgan creates a digital token for its payment services, see <www.jpmorgan.com/global/news/digital-coin-payments>.

176 Basel Core Principles 2012, at Principle 8.

177 Borràs, S, “Analysing the Innovation Policy of the EU” in Borràs, S, The Innovation Policy of the European Union: From Government to Governance (Cheltenham, Edward Elgar 2003)CrossRefGoogle Scholar ch 1, discussing innovation policy as initiated to deal with the rise of the “knowledge economy” since the early 2000s.

178 Schwab, K, The Fourth Industrial Revolution (Currency 2017)Google Scholar.

179 Chiu, supra, note 2.

180 Described as sedimentary innovation, see Ford, C, Innovation and the State: Finance, Regulation, and Justice (Cambridge, Cambridge University Press 2018)Google Scholar.

181 Above.

182 See HTC Hu, “Financial Innovation and Governance Mechanisms: The Evolution of Decoupling and Transparency” (2015) 70 Business Lawyer 347 on the importance of learning in an objective manner the implications of innovation and disseminating for public education; S de Saille, “Innovating Innovation Policy: The Emergence of ‘Responsible Research and Innovation” (2015) 2 Journal of Responsible Innovation 152.

184 E Sutherland, “Trends in Regulating the Global Digital Economy” (2018) at <papers.ssrn.com/sol3/papers.cfm?abstract_id=3216772>.

185 Borràs, S and Edler, J, “Introduction” in Borràs, S and Edler, J (eds), The Governance of Socio-technical Systems: Explaining Change (Cheltenham, Edward Elgar 2014)CrossRefGoogle Scholar.

186 Sundarajan, supra, note 57; A Killeen, “The Confluence of Bitcoin and the Global Sharing Economy” in Lee, supra, note 36, ch 24.

187 Explained in de Fillippi and Wright, supra, note 68.

188 One can also use Neil Fligstein’s economic sociology analysis to map the network analyses of actors and structures in new markets, see N Fligstein and R Calder, “Architecture of Markets” in R Scott and S Kosslyn (eds), Emerging Trends in the Social and Behavioural Sciences (2015) at <sociology.berkeley.edu/sites/default/files/faculty/fligstein/architecture%20of%20markets%20Calder%20Trends.pdf>, and earlier work Fligstein, N, The Architecture of Markets (Princeton, NJ, Princeton University Press 2001)CrossRefGoogle Scholar.

189 Sundarajan, supra, note 57; D Prabhat, “‘BorrowMyDoggy.Com’: Rethinking Peer‐to‐peer Exchange for Genuine Sharing” (2018) 45 Journal of Law and Society 84.

190 J Palomera, “Reciprocity, Commodification, and Poverty in the Era of Financialization” (2014) 55 Current Anthropology S105; also the “corruption” of objects that should not be subject to a market price, as argued by T Dagan, “Commodification without Money” (2010) at <ssrn.com/abstract=1537586>; Sandel, M, What Money Can’t Buy- The Moral Limits of Markets (London, Penguin 2013)Google Scholar.

191 > Lee, J, Crypto Finance, Law and Regulation (Oxford, Routledge 2019) generallyGoogle Scholar.

193 S Borràs, “Analysing the Innovation Policy in the EU” in Borràs, supra, note 177, ch 1.

194 Mazzucato and Perez, supra, note 120.

195 M Benner, “Innovation Policy in Hard Times: Lessons from the Nordic Countries” (2012) 20 European Planning Studies 1455.

196 Borràs, supra, note 177, chs 1 and 7; also Biegelbauer, PS and Borràs, S, “Introduction” in Biegelbauer, PS and Borràs, S (eds), Innovation Policies in Europe and US: The New Agenda (Aldershot, Ashgate 2003)Google Scholar.

197 OECD, Governance of Innovation Systems: Vol 2 (2005).

198 A Benz, “Combined Modes of Governance in EU Policy-making” in Tömmel and Verdun, supra, note 81, ch 3.

199 Borràs, supra, note 177.

200 ibid, “Introduction”.

202 Borràs, supra, note 177, “Conclusion”, ch7.

203 de Saille, supra, note 182; and legalising an initiative of responsible innovation in the financial sector, see MT Casparri et al, “Responsible Financial Innovation in Banks: Committees of New Products” (2015) 19 Revista Científica “Visión de Futuro” at < www.redalyc.org/articulo.oa?id=357941099006> ISSN 1669-7634.

204 de Saille, supra, note 182.

205 S Borràs and J Edler, “The Governance of Change in Socio-technical Systems: Three Pillars for a Conceptual Framework” in Borràs and Edler (eds), supra, note 185.

206 S Kuhlmann, “Future Governance of Innovation Policy in Europe – Three Scenarios” (2001) 30 Research Policy 953.

207 Borràs and Edler (eds), supra, note 185.

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