On February 7, 2017, the European Securities and Markets Authority (ESMA) released a report titled “The Distributed Ledger Technology Applied to Securities Markets,” and found that there is no need to regulate blockchain technology at this time. Their goal was to understand how distributed ledger technology (DLT) could affect securities markets, and if there was a need for new regulations to promote the benefits of DLT and mitigate its risks.
As stated in the report:
“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.”
It seems that ESMA is recommending what many other regulators have been doing all along - taking a ‘wait-and-see’ approach. Regulators are clearly aware of blockchain-based technology, and would rather not jump the gun regulation-wise for fear of potentially stifling an emerging technology that could bring serious efficiency improvements to existing systems.
ESMA is also aware of how disruptive technology could potentially sidestep existing regulations, so they’re still doing their homework. It’s all about maintaining a balance between protecting consumers and promoting economic growth. ESMA specifically looked into how the “existing EU-level regulatory regime” would affect DLTs in securities markets, and concluded:
“ESMA’s understanding is that the current EU regulatory framework does not represent an obstacle to the emergence of DLT in the short term. Meanwhile, some existing requirements may become less relevant through time. New requirements might on the contrary be needed to address emerging risks. Also, a number of concepts or principles, e.g., the legal certainty attached to DLT records or settlement finality, may require clarification as DLT develops.”
Essentially it’s still too early to fully understand all the ways blockchain technology can improve and disrupt daily financial operations. The safest move any regulator can make right now is to do nothing, it seems. Rather than risk overregulating fintech enterprises right out of business, the EU is going to let things continue to unfold naturally—for now at least.
“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.”