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The paper discusses supervision and regulatory issues of cryptocurrencies, and finds that a central bank digital currency in the EU is not (yet) warranted.

By Max von Cube

In May, the European Central Bank’s Crypto-Assets Task Force published a paper on cryptocurrencies such as Bitcoin, Ether, and Ripple (referred to as narrowly defined “crypto-assets”). The paper, titled “Crypto-Assets: Implications for financial stability, monetary policy, and payments and market infrastructures,” follows similar recent publications by the European Banking Authority (EBA)[i] and the European Securities and Markets Authority (ESMA).[ii]

After examining cryptocurrency markets and tracing their linkage to the financial system and the real economy, the authors of the paper found that cryptocurrencies currently do not pose a material risk to financial stability. Further, the authors currently see no direct implications of cryptocurrencies for monetary policy.

Leading association focuses on advancing the adoption of blockchain technology across industries.

Latham & Watkins has joined the Global Blockchain Business Council (GBBC), a leading industry association for the blockchain technology ecosystem, which brings together organizations and innovators from over 40 countries to advance understanding of blockchain technology. The organization focuses on “furthering [the] adoption of blockchain technology through engaging regulators, business leaders, and global changemakers.” Latham has also joined the GBBC’s Legal and Regulatory Group (LRG), which facilitates dialogue on the legal and regulatory issues originating from the development of blockchain technology.

The guidelines create new obligations for financial, payment, and electronic money institutions that will impact cloud outsourcing and deployment of FinTech.

By Fiona M. Maclean and Laura Holden

On 25 February 2019, the European Banking Authority (EBA) published a final report on its draft guidelines on outsourcing arrangements (Guidelines). The report followed the EBA’s publication of draft guidelines in June 2018 (Draft Guidelines) and the ensuing public consultation in September 2018 (Public Consultation).

The Guidelines replace the 2006 Committee of European Banking Supervisors (CEBS) Guidelines on Outsourcing (CEBS Guidelines) and replace and incorporate the EBA’s final recommendations on outsourcing to cloud service providers (Cloud Recommendations). Financial institutions will now only need to consult one set of guidelines for cloud and non-cloud outsourcing.

Regulatory guidance on cryptoassets and digital currency companies may lead to a legitimisation of crypto-businesses as an investable asset class.

By Stuart Davis, Sam Maxson, David Walker, Tom Evans, and Catherine Campbell

Recent and upcoming regulatory guidance on cryptoassets and the regulation of companies engaged in digital currency, such as issuers, crypto-exchanges, crypto-custodians, crypto-brokers, and other service providers, could help facilitate private equity investment in this space. While there has been some institutional investment in crypto-businesses — such as Goldman Sachs’ investment in Circle (owners of the Poloniex crypto-currency exchange) and Tiger Global’s investment in Coinbase — this has been a relatively nascent market with most money coming in the form of early-stage and venture investing.

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Drivers of Volatility in Cryptoassets Values

Regulatory uncertainty has been a key driver in dampening the market value of cryptoassets. Regulators around the globe have issued warnings that cryptoassets may be regulated financial instruments, and issuers and intermediaries may require licences. Further, the application of AML/KYC rules to cryptoassets has been unclear.

By Andrew Moyle and Stuart Davis

Growth in applications for blockchain and tokenisation, combined with an increasing number of initial coin offerings (ICOs), mean that buyout firms should note developments in this sector.

Why Should PE Be Interested in Blockchain?

A shared blockchain ledger could drive a single interface between a PE fund and its investors, increasing transparency and efficiency, providing real-time updates for LPs on investments, and enhanced investment analytics.