AFME Calls for pan-European Crypto Asset Taxonomy

The Association for Financial Markets in Europe (AFME) wants the financial services industry to adopt a pan-European crypto asset taxonomy to act as the first step in achieving a common EU regulatory framework.

The industry body, which represents firms in the European wholesale market, says that a harmonized taxonomy would provide an equal understanding of crypto assets for the EU bloc and enable firms to more easily collaborate and engage in trading digital assets.

“One of the key reasons that a common taxonomy was an important first step was because it acts as a baseline for various stakeholders in different jurisdictions to be able to talk the same language,” Emmanuel le Marois, associate director of technology and operations at AFME, says.

AFME hopes that creating standards in the space would provide more certainty and confidence for industry firms to participate in cross-border trading of crypto assets and set out a template for lawmakers to work off. Also, an EU taxonomy would operate as a benchmark for a global understanding of digital assets.

AFME outlined the recommendation in a report published on November 15, in which it also provided four recommendations to help EU and global regulators establish a common playing field for regulating crypto assets. The recommendation included guidance on the issuing of virtual tokens or Initial Coin Offerings (ICO), how the regulation should be technology agnostic, adapting existing regulation to include crypto-assets and promoting a global regulatory framework.

As part of the report, AFME proposed that the taxonomy should classify crypto assets based on their economic function, to begin with. Whereas later versions could consider characteristics such as price stabilizing mechanisms, redemption rights or clearly identifiable and regulated issuers.

AFME published the report in response to how varying jurisdictions in Europe have inconsistent definitions of digital assets or approaches to regulating the emerging asset class. Some national competent authorities have diverged in their positions, with a number of them developing bespoke regimes that target a narrow range of activities.  For example, France has developed a legislative framework called PACTE to allow firms to apply for an optional visa to engage with crypto assets legally. Earlier this year, Italy legally recognized time-stamping on distributed ledger technology, and in Germany regulators introduced crypto asset custody as a new financial service. Added to the mix are the varied positions of global regulators on how to treat digital assets, as many of them, such as the US Securities Exchange Commission, has taken a more hard-line approach.

Additionally, many EU nations have classified crypto assets differently, with some viewing them as either security assets, exchange tokens or even utility tokens.

“We have seen a wide range of activities occurring at the national level and looking at different segments of the market with little European-level coordination or orchestrated approach,” Le Marois says. “And that is what prompted us to look more closely at this area. The concern of our members is that while there are benefits of having initiatives at the national level, without appropriate EU-wide coordination there is a risk of increased market fragmentation and less legal certainty.”

AFME hopes that the report will encourage the EU to become a global leader in creating a common legal framework that other nations can follow.

The report follows other recent initiatives to provide standardization to digital assets. In October, the Association of National Numbering Agencies established a member task force to develop standards for the identification of crypto assets.