European securities regulators are launching an examination of virtual currencies, and the underlying technology behind them, in an effort to understand how they could change investment markets, and the infrastructure for trading and settling securities transactions.
The European Securities and Markets Authority (ESMA) Wednesday issued a call for evidence on how virtual currencies, and the distributed ledger technology that underpins them, could be used to issue, buy and sell and record ownership of securities.
The ESMA notes that there are now facilities available to use the blockchain processes that were developed to create virtual currencies as a means of issuing, transacting in, and transferring ownership of securities, “in a way that bypasses the traditional infrastructure for public offer and issuance of securities, trading venues like exchanges and central securities depositaries or other typical means of recording ownership.”
The regulators are looking for insight into these developments, and to understand the extent to which blockchain processes could enter the financial mainstream, and how they could be used. In particular, they are looking for information on investment products, such as investment funds or derivatives, that hold virtual currencies as an underlying asset, or invest in virtual currency related businesses and infrastructure; financial assets that are traded using distributed ledgers; and, the possible application of the distributed ledger technology to securities/investments, whether inside or outside a virtual currency environment.
The ESMA says that it has been examining virtual currency investment over the last six months, in an effort to understand developments in the market, and the potential benefits or risks for investors, market integrity or financial stability. Now it would like to hear from various players in this space, including existing financial institutions, start-ups and their technological advisers, along with issuers and investors. In its paper, it stresses that it has no pre-conceived view as to whether any other regulatory action is needed in this area, and, it says that it has no immediate plans to take any action, unless the consultation reveals the need for it. The consultation is open until July 21.
In Canada, the Standing Senate Committee on Banking Trade & Commerce has also been studying the emergence of virtual currencies, and the development of blockchain technology, for the past year or so.