– An interview with Dr Joachim Schwerin, Principal Economist at the European Commission
Who would believe that a heavyweight institution like the European Commission could be a highly visionary and progressive market driver?
Well, that is precisely what the European Commission has been several times already over recent years. We saw that very clearly in the case of the revised payment services directive, PSD2, which was probably the most progressive piece of European financial legislation in decades.
We saw it with the European Commission’s ban of different types of potentially toxic plastic used for instance, in children’s toys. And we saw it just a few months ago when the European Commission released its proposal for a new crypto asset law, the MiCA Regulation as part of its new Digital Finance Strategy. In these and other cases the European Commission has shown both a will and an ability to set a visionary agenda for Europe (and beyond, indirectly) on critical topics.
In this interview with Dr Joachim Schwerin, Principal Economist in the Directorate-General Internal Market, Industry, Entrepreneurship and SMEs at the European Commission, we talk about his and the Commission’s approach to the future of the token economy in Europe. With the MiCA Regulation the Commission has taken a bold step; but what are the story and the vision behind the new regulation? And where does it leave security tokens and STOs that are not regulated by MiCA?
Dr Joachim Schwerin would like to stress that in this interview he expresses his personal views, which do not necessarily represent an official view of the European Commission.
Michael Juul Rugaard (MJR): The recently announced MiCA proposal has been received quite positively in the blockchain and crypto space where regulatory clarification is hugely needed. Could you put some words on your – and I suppose, the Commission’s – vision behind MiCA?
Joachim Schwerin: The proposed Markets in Crypto Assets (MiCA) Regulation forms part of a broader package, the Digital Finance Strategy adopted on 24 September 2020. This strategy has several elements, two of which have particular relevance for applications built on distributed ledger technologies (DLT, which I will hereunder also summarise as “blockchain”): MiCA and our innovative pilot regime for market infrastructures based on DLT, which creates a safe regulatory environment for testing innovative DLT-based financial market infrastructures in the EU.
When it comes to the vision, the approach is even broader than this, as the Digital Finance Strategy itself is closely linked to the EU Digital Strategy (adopted on 19 February 2020) but also, for instance, our EU SME Strategy (adopted on 10 March 2020). The latter already includes two specific blockchain-related actions for SMEs, i.e. digital education and the objective of enabling SMEs to issue crypto assets and digital tokens. All of this is embedded into one of the Commission’s two big priorities: digitalisation of our economy.
I think that the generally positive market response to the MiCA proposal stems from a careful balancing between improving legal certainty and supporting the significant innovation potential of DLT. We chose a carefully calibrated risk-based approach that creates a new category of tokens: crypto assets that are not subject to securities laws but a lighter regime. It fosters innovation by speeding up token issuance, harmonising rules within the Internal Market and allowing every type of token to operate within the EU if it complies with the clearly phrased set of rules laid out by MiCA. This, in essence, is a market-driven, bottom-up path to digitalisation and tokenization that, from a philosophical perspective, benefitted from insights we gained when we started studying – without prematurely harmonising – decentralised alternative finance and crowdfunding a decade ago.
MJR: When did you realise that blockchain and crypto were about much more than shady scams and that it had to be taken seriously, and when did you first become aware of tokenization?
Joachim Schwerin:I have never believed that blockchain and crypto were shady scams, and I am not aware that anyone in the Commission ever expressed such an opinion. I liked the first emerging cryptocurrencies because of the principles they represent: entrepreneurship, decentralisation, privacy and resistance against a Big Brother mentality that increasingly infiltrates our societies. However, of course, it took time for me – as for everyone involved – to grasp the full potential, and until six or seven years ago I thought that cryptocurrencies were nice gimmicks but not much more.