ESMA: Regulating blockchain would be premature

Regulation | February 9, 2017 By:

The European Securities and Markets Authority (ESMA) released a report on Distributed Ledger Technology (DLT), which sets out its views on the technology, the tech’s possible applications, benefits, risks and how it maps to existing EU regulation.

The agency has revealed it believes regulating blockchain technology at this time would be premature. The ESMA has been researching distributed ledger technology (DLT) for quite some time in order to craft regulatory framework. Then in November, ESMA executive Patrick Armstrong told attendees at a blockchain conference the technology could be banned. However, the report issued by the ESMA on February 7 is quite different than Armstrong’s approach.

“At this stage, ESMA believes that it is premature to fully appreciate the changes that the technology could bring and the regulatory response that may be needed, given that the technology is still evolving and practical applications are limited both in number and scope,” the report said.

In the meantime, the agency called on securities industry stakeholders to develop solutions around interoperability and standards. Further, ESMA indicated that, in the future, it may move to develop a regulatory framework.

“ESMA will continue to monitor market developments around DLT to assess whether a regulatory response may be needed,” it said.

ESMA also pointed out that beyond pure financial regulation, broader legal issues, such as corporate law, contract law, insolvency law or competition law, may affect the deployment of DLT.

“ESMA will continue to monitor market developments around DLT to assess whether a regulatory response may be needed. Active engagement from regulators and coordination at EU and international level are paramount in ESMA’s view to ensure both that DLT does not create unintended risks and that its benefits are not hindered by undue obstacles. Meanwhile, ESMA believes that the industry should work towards solutions to address the challenges posed by the technology,” it added.