European Commission's Digital Euro Legislation Receives Mixed Reviews from IIF
Summary:
The Institute of International Finance (IIF) has evaluated the European Commission’s proposed legislation for the digital Euro, stating that it only partially addresses concerns in six out of seven areas they considered. Notably, the legislation does not clearly define privacy controls, anti-money laundering and cybersecurity measures, or govern potential conflicts of interest. Payment Service Providers (PSPs) face restrictions on cost recovery for implementing digital euro services as credit institutions are required to provide basic digital euro services for free. Additionally, the legislation set holding limits for financial stability, though these have yet to be defined or enforced.
An evaluation of the European Commission's draft law concerning the digital Euro has been released by the Institute of International Finance (IIF). The proposal received mixed reviews by the IIF, a globally recognized financial industry advocacy group based in Washington, D.C. with members spanning across 60 nations. The preliminary evaluation tackles the digital Euro proposal introduced in June and its associated impact assessment. This critique follows comments made by the IIF in June, offering their perspective on the matter.
The IIF scrutinized seven domains, deeming six as "partially addressed" in the proposed regulation. Aspects such as cost-benefit analysis were found to be "elemental and high-level", with several facets relying on pre-existing studies or missing completely. The IIF remarked on the proposal's mention of financial stability and bank intermediation, to be regulated by setting limits, though the parameters of these limits haven't been defined nor is it understood how they could be implemented.
The study also observed restrictions on Payment Services Providers' (PSPs) capacity to offset costs incurred in the process of furnishing digital euro services, like establishing connectivity to the structure and corresponding software development for e-wallets, with limits imposed on associated fees. The requisition requiring credit establishments to extend basic digital euro functionalities without charge, interpreted the "economic and liability model challenges" as only semi-addressed in the proposal.
According to the report, classifications for privacy measures regarding the digital Euro are yet to be released, and it remains uncertain what steps PSPs are expected to undertake to meet these standards or if complicance will be feasible upon introduction of the digital Euro. The IIF echoes a similar concern about provisions relating to Anti-Money Laundering and cybersecurity.
IIF highlighted governance and potential conflicts of interest as areas overlooked in the legislation. As the ECB could potentially play the role of the bank overseer, issuer, director, and fee-setter for the digital Euro, it noted that such duplicity of roles could lead to conflicts of interest between regulator and operator, with no impartial scrutinization foreseen for the institution.
In its report, IIF continued to promote its stance on interoperability, stating that recreating concurrent systems that could bind capital and liquidity, encounter comparable challenges, and generate high costs would offer little to no value. They emphasized that a Central Bank Digital Currency (CBDC) should operate on platforms that other digital currencies use. As the legislation for the digital Euro is being formulated alongside its infrastructure, the digital Euro will continue to be in the exploratory phase until October. Post this phase, the ECB may proceed to trial technical and commercial resolutions. The digital euro can only become operational following the law's endorsement.
Published At
9/20/2023 9:45:00 PM
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