This week, France’s Financial Markets Authority (AMF) raised eyebrows across the entire continent when it proposed that the EU create a regulatory “sandbox” to further development of the security token sector. The “Digital Lab” would allow businesses to operate unshackled from Europe’s traditional market regulations. Importantly, if the project achieves approval, the data collected could directly influence future security token regulations across the entire EU.
News of the Digital Lab concept first broke via a legal analysis released from the AMF. This research paper gives valuable insight into the legal obstacles slowing security token adoption. Importantly, the document starts off with an explanation of how the lab would function. Notably, countries could waive regulations regarding securities settlement and delivery for certain companies. To do so, the country would need to provide a guarantee of the legality of the transactions.
According to AMF documentation, the Digital Lab project would provide the research needed to establish a flexible and effective regulatory framework for tokenized assets to flourish within. The project gives authorities the ability to closely monitor blockchain firms and their effectiveness in the market. Notably, the AMF appears to be in no rush to produce these regulations. The AMF suggests that the sandbox lasts for three years in total. The AMF believes in that time, the EU will possess enough data to create new, flexible regulations, that don’t stifle innovation in the space.
Speaking on the concept of the Digital Lab, AMF President Robert Ophèle discussed the true responsibilities of a regulatory authority. He explained that regulators need to figure out exactly how to protect users, without creating barriers to innovation. The Digital Lab could be the answer.
Ophèle took a moment to speak on how the current regulations are built around “centralized market infrastructures.” As such, this framework doesn’t take into account the added efficiency blockchain tech provides. The decentralized nature of the blockchain environment removes many of the critical steps required in traditional financial transactions.
Ophèle believes that regulators need to first, understand these changes before they can effectively provide regulations that benefit the public and the industry. At one point he described the scene as a “chicken and egg’ paradox. Basically, regulators need market data to make regulations that are relevant. He explained that if the regulatory frameworks remain inappropriate, the markets won’t develop at a pace to keep up with the global competition.
The AMF continues to be one of the strongest advocates for the adoption of blockchain and distributed ledger technology in the EU. As such, these pro-blockchain financial regulators share responsibility for much of the growth experienced in the sector to date. The group was pivotal in approving the first STOs and regulations to hit the continent. It’s an excellent sign for the market that the AMF proposed such an innovative concept. Hopefully, the rest of the EU will embrace the strategy. If so, the security token market is ready to blast off in the coming years.