During last week BetterTokens co-founder and Board member Artem Tolkachev and BetterTokens secretary Georgiy Gukasyan had a meeting with Luxembourg’s financial supervisory commission (CSSF) to discuss the view of the regulator on stable coins. Below we have summarised the insights from this meeting.
The main conclusion that can be reached is that the crypto part of the stable coin business model is not subject to regulation by CSSF, while the part related to handling of client’s fiat funds is. Issuers have to determine the type of financial service that they provide to customers related to fiat and apply for corresponding license. The success of such application may depend on clear explanation of regulated and non-regulated flows, and a justified position to back the type of license that was selected.
There is no official position or regulation on tokens or cryptocurrency in Luxembourg or at the EU level, and there is no unified approach between European competent authorities — there are some Member States that are more favourable to this kind of business, while others are not.
The above complicates things for projects that are seeking to obtain license and operate a regulated stable coin business in Europe, as even if one jurisdiction would adapt an approach and classify stable coins as a specific type of asset subject to corresponding regulation, it would not mean that another EU country will adapt the same approach, making the option to passport the selected regime through different European jurisdictions nearly impossible. A unified regulation in the EU on this matter can take years from now to be developed.
In view of the above a conclusion can be reached that the stable coin as a token (and related cryptocurrency transactions) currently is not in the area of regulation by CSSF.
However, the stable coin model has another leg related to transactions with fiat. Stable coin issuers enter in position of client’s funds, and this activity is supervised by CSSF.
The type of financial service provided to the clients in fiat transactions has to be determined and justified by the stable coin issuer when presenting its business model to the regulator as part of licensing application. The crypto part will not be subject to such license, and this has to be clearly stated by the issuer in its relationship with customers.
However, CSSF does not discourage the financial world to have connection with cryptocurrency, therefore crypto related services could still be provided.
Any application for licensing is analysed on case-by-case basis subject to corresponding legal analysis of the proposed business model.
The stable coin issuer will have to explain to the regulator the role of each part of the project, the fiat and stable coin flows, the moment when the stable coin is issued, to whom and what can be done with the stable coin, as well as when does it enter the regulated part and when does it leave it.
Once these matters are covered, the regulator will decide whether the proposed model would fit in current regulatory framework which exists for fiat transactions. The crypto part, however, will have to remain unregulated for now.