The dissertation is one of the first comprehensive national studies of the state of legal regulation of cross-border legal relations on the financial market of Ukraine with a comprehensive study of contracts on the financial markets of Ukraine in the system of international, European and Ukrainian financial markets. The choice of the specified topic is determined by its relevance in the view of the following points. Financial markets are becoming more democratized, the offering of financial services mostly does not depend on borders, the financial market is transforming and attracting new financial technologies. The main task for regulators in financial markets is to preserve the stability of the financial system. Legal regulation designed to achieve the specified task should not be an obstacle to the development of financial markets and compromise their efficiency. Financial markets are centralized and subordinated, and new legal relations tend towards their decentralization and maximum non-interference of the state. Contracts on the financial markets set the task to obtain the greatest economic opportunities for their parties, which becomes possible due to a wide range of financial instruments and offered financial services, which participants in legal relations can choose not only within the country of residence, but also throughout the world. When entering into such cross-border contracts in the financial markets, questions regarding the law applicable to such contracts are important aspects. Due to the complexity of some types of financial instruments, this issue becomes more important, which is important for research. Thus, new unsolved issues before private international law arise. Accordingly, in the first chapter, the author analyzes scientific approaches to the definition of the concepts of "financial market", "contracts on the financial market", “international financial market”. The structure of the financial market, its nature and classification of transactions on the financial market are determined herein. Further, in the first chapter, the characteristics of "cross-border" and "foreign element" in the financial markets of Ukraine are given, the need to determine the jurisdiction of the counterparty is established, and cross-border transactions are analyzed at the moment in the capital market of Ukraine. In the second chapter, the author directly examines each segment of the financial market and cross-border legal relations in it. Further, the main types of contracts on financial markets are analyzed and the issue of law applicable to these contracts is investigated herein. Also in the second chapter, regulatory regulation at the national, regional (EU) and international levels is defined. Judicial practice regarding contracts on the financial market is studied herein. Further, the General Agreement and contracts concluded with a trader conducting professional activity on the capital market and the client are analyzed. The role of transactions in each segment of the financial market is established and mechanisms for resolving disputes regarding such transactions are considered. In the third chapter, the legal regulation of the main transformational processes in the international financial market and the financial market of Ukraine are predicted. The main obstacles to cross-border activity in the financial market are determined herein. The legal regulation of the EU regarding virtual assets and distributed ledger technology, the corresponding infrastructure of the virtual assets market is analyzed in detail. The main trends for changes in the legislation of Ukraine regarding financial markets during Covid-19 and during the full-scale invasion of the Russian Federation are determined. When conducting the research, the author compares the previous and current legal regulation of Ukraine in the financial market, conducts a comparative analysis of Ukrainian legislation with EU law and the compliance of current legislation with international standards and principles, requirements of international regulators. Case study is analyzed and practical recommendations are provided for improving the legal regulation of Ukraine. The scientific novelty of the results obtained as a result of the dissertation research is as follows. The following author's definition is proposed: "financial market" – legally regulated mechanism of redistribution of financial assets, which occurs between participants of the financial market in accordance with the current legislation in order to obtain certain economic benefits. For the first time, the need to include the following segments in the composition of the financial market is justified: the capital market, the market of banking and non-banking financial services, the market of virtual assets, the organized commodity market, the foreign exchange market. Since the specified segments of the financial market are the mechanisms on which legal relations arise with respect to various financial assets to meet the needs of their participants. The author's view on the feature of "cross-border" is proposed: cross-border activity on the financial market is defined as the activity of any subject of the financial market, which carries out activity that has international characteristics, including legal relations of a private law nature with a foreign element. The special role of transactions in each segment of the financial market is determined: in the capital market, the role of a transaction of an auxiliary nature (not related to the basic financial asset), in relation to transactions with the infrastructure of the capital market and directly the main agreements regarding a financial asset (financial instrument), the role of a derivative financial instrument as a contract and a financial instrument, not a security, the role of a contract in the financial services market as the basis for providing a corresponding banking or financial service, the role of a currency contract as a type of derivative financial instrument. In order to improve the national legislation, it is recommended to make changes to the Law of Ukraine "On Virtual Assets" in order to harmonize the specified legal act with EU law. In particular, add the following provisions: clause 13, part 1 of Art. 1: 13) distributed ledger technology – virtual asset market infrastructure technology that implements a distributed ledger of data that is synchronized using an algorithm. Clause 8, Part 1, Art. 1 shall be amended as follows: 8) providers of services related to the turnover of virtual assets – exclusively business entities – legal entities that conduct one or more of the following types of activities in the interests of third parties: ... administration by distributed registry technology; Recommended subject to the entry into force of the Law of Ukraine "On Virtual Assets", the Law of Ukraine "On International Private right" to add the provision: Clause 5 Part 2 of Art. 44: 5). regarding contracts and operations concluded with the help of distributed ledger technology – the right of the state of the administrator of the distributed ledger technology. The classification of transactions on the financial market of Ukraine has been analyzed further (depending on the type of financial asset, the consolidation of obligations, the method of conclusion, the place of conclusion, by the presence of a foreign element, by segment of the financial market, with the participation of an intermediary). The author's definitions is proposed: "contract on the financial market" – a transaction entered into in any segment of the financial market and aimed at establishing, changing or terminating legal relations with respect to a financial asset and/or ensuring the efficient functioning of the financial market in accordance with regulatory requirements; "international financial market" – the mechanism of redistribution of international financial assets between participants of the international financial market in accordance with the harmonized norms of international legal regulation of the financial market. Scientific views on conflict-of-law regulation of the circulation of indirectly owned securities, transactions on the financial market concluded with the help of distributed ledger technology have received further development. Recommendations regarding the legal regulation of the virtual asset market in accordance with EU law were further developed, in particular, the provisions on tokens and tokenization as a digital representation of a value or right that is accounted for and stored using distributed ledger technology. The following proposals have been made regarding conflict regulation of transactions on the financial market. Since the analyzed attempts to unify the issues of the law applicable to legal relations regarding securities, in particular by solving conflicting issues regarding securities of indirect ownership, have common shortcomings regarding, in particular, the unresolved issues regarding virtual assets, which leads to potential future difficulties in the aspect of the application of financial technologies, the circulation of virtual assets, it is proposed to enshrine the following: issues arising in relation to transactions made by a transaction on the financial market, including transactions made on the DLT platform, in particular, issues of ownership of an asset, are resolved by the national law of the country that was determined in a specific transaction. In the event that such a right has not been determined by the parties, the law of the country shall be applied: – in relation to securities of indirect ownership: the right of location of the relevant intermediary – the formal holder of securities carrying out activities related to the administration of the securities account; – in relation to smart contacts: the right of the administrator of the DLT platform on which the smart contract was concluded; – in relation to other
Conflict of Laws in the Proprietary Issues of Dematerialized Securities Abstract The doctoral thesis focuses on the conflict of laws in the proprietary issues of DLT dematerialized securities. The subject is directly related to the phenomenon of blockchain technology as a subcategory of DLT (Distributed Ledger Technology). At the heart of the issue lies the so-called digital token, which is a virtual, non-replicable unit that originates and exists in a DLT environment. A digital token is qualified as a thing in a legal sense, more specifically, as an intangible movable thing, and may fulfil the characteristics of a dematerialized security (DLT dematerialized security). For example, a digital token may fulfil the characteristics of a DLT financial instrument within the meaning of Regulation (EU) 2022/858 of the European Parliament and of the Council of 30 May 2022 on a pilot regime for market infrastructures based on distributed ledger technology. DLT dematerialized securities should not be materially identified with a static entry in a register, account or any other records (the conception of the dynamic nature of digital tokens). The essential condition for the legal existence of DLT dematerialized securities is their creation on the relevant blockchain platform and the subsequent linking of the digital...
The rise of digital currencies has led to the entry of non-bank institutions into the payments industry. Electronic money was introduced in the 1990s to offer a faster, more cost-effective, and user-friendly alternative to the bank-based payment system. Bitcoin, introduced in 2008, revolutionised payments through distributed ledger technology. In 2019, Facebook&s;s Diem proposed a stable digital currency with the potential to become a widely accepted means of payment. Unlike non-stable digital currencies, stablecoins are backed by a pool of assets and can be claimed by the user. The European Union regulatory framework distinguishes between means of payment issued or guaranteed by public authorities with a sovereign fiat value and virtual currencies and stablecoins that lack fiat and crypto characteristics. Sovereign units of account-based means of payment are generally more in demand and can be considered money. The shift towards new digital currencies instead of cash and bank deposits may impact the bank-based payment system and disrupt monetary policy and financial stability. Governments, regulators, and central banks are concerned about global stablecoins. This chapter examines the impact of a global stablecoin on the current banking ecosystem, the monetary-financial system, and the euro area regulatory framework from the perspective of stablecoin emergence.
The Regulatory Response and the Current and Future Legal Status The relative newness of non-fungible tokens combined with their complex nature has led to an unclear response from U.S. regulators. The incomplete regulatory scheme has left the market open to the various forms of bad actors common among financial asset classes. Within this article we evaluate the current regulatory status of the cryptocurrency markets and their applicability to NFT Markets. Regulators who are most active in the crypto space include the SEC, CFTC, CFP, and FTC. Because regulatory power is vested differently among the various regulators there exists an inability of any one regulator to adequately address the complex nature of NFTs. To address this inadequacy this article argues that the dispersed regulatory powers should all be granted to the SEC due to its express interest in regulating digital asset markets.
This chapter considers how DLT could be used in connection with derivatives transactions and the English law and cross-border conflict-of-laws issues that may arise from such use. The chapter addresses more simple use cases for DLT, such as acting as a record keeping function in respect of payments under a transaction or in respect of transfers of collateral, and why conflict-of-laws issues are less likely to arise from such use. The chapter then looks at more complex use cases, in particular the potential use of tokens housed on a DLT system as collateral in respect of derivatives transactions. The chapter considers a number of different types of tokens, from tokens that are backed by a real-world asset to tokens that are native to the DLT system, and addresses the conflicts-of-laws issues that may arise from taking security over such tokens. The chapter also addresses how the law could be developed so as to provide greater legal certainty on these issues.
Diego Valiante, Marco Lamandini, David Ramos Muñoz
This chapter focuses on the historical path and the impact of digital finance policies on capital markets integration in the European Union. The first section gives an overview of the origins of key recent technological developments for the financial system, such as distributed ledger technologies, and the principle of regulatory intervention in the EU. The second section delves into the content of the most recent European strategy on digital finance, with a focus on recent regulatory interventions, such as the Markets in Crypto Assets Regulation (MiCAR) and the Distributed Ledger Technology Regulation (DLTR). The last section draws conclusions on the promises and perils of a digital security for capital markets integration and corporate governance.
In recent years, we have seen a progressive movement towards disintermediation of the US capital and financial markets. This ongoing evolution is evidenced by the rapid growth in these markets of alternative financing options that involve a reduced role (if such a role remains at all) for traditional regulated intermediaries, such as brokers, dealers, underwriters and exchanges. This change presents both benefits and risks for investors given that regulated intermediaries’ responsibilities are geared towards investor protection (in particular, retail investor protection) and mitigating potential conflicts of interest. The continued erosion of the intermediary role and the protections embedded within that role poses significant challenges for regulators who are tasked with monitoring these ever-evolving markets and protecting investors from attendant risks—risks that are further compounded by the rapid digitalization and decentralization of modern financing activities. The primary drivers of disintermediation include recent economic crises; technological advances that stem from the online nature of many modern financing activities and the costs of regulation, including, in particular, regulatory capital requirements that apply to many intermediaries. These economic flash points include the funding gap that followed in the wake of the 2008–2009 financial crisis; the inherent funding limitations of smaller markets; and, most recently, the economic effects of the coronavirus disease-19 (COVID-19) pandemic. These developments have increasingly led to companies seeking alternative financing options outside of traditional sources that are, or are perceived to be, cheaper, quicker and more flexible or easier to access. This trend has been further fueled by a large amount of capital waiting to be invested in the markets (the so-called ‘dry-powder’) and reduced bank lending during the first 2 years of the COVID-19 pandemic—which many believe led to the meteoric increase in the popularity of alternative capital raising vehicles, such as special purpose acquisition companies (SPACs).
Drawing on an integrated analysis of the latest European Union (EU) economic and financial governance reforms in the 2020s, we glean a new European economic governance paradigm. This article unpacks the main features of this new form of European gouvernement économique. The article focuses particularly on the set of policies adopted by two key actors in European economic and financial sector governance – the European Commission and the European Central Bank (ECB) – to advance the ‘green transition’ toward a carbon neutral EU economy by 2050. The new EU gouvernement économique aims to steer the Union towards a ‘net zero’ emissions economy by 2050, albeit important recent studies (European Court of Auditors 2023) have raised concerns that this ambition may not be realistic. It has larger financial means at its disposal considering the ‘traditional’ EU budget, combined with newly set-up supranational investment funds available through the NextGenerationEU (NGEU) programme. Moreover, it unfolds in a more complex polycentric system of EU economic governance (Ostrom 2010; Schmidt 2023; Vogler 2020; van Zeben and Bobic 2019) than envisioned in the older gouvernement économique blueprints of the 1990s. Faced with ‘wicked’ policy problems in this decentralized governance setting, such as the climate crisis, a global public health crisis and war at its doorstep, the EU institutions have to resolve the tension between multiple policy objectives, such as pursuing economic growth and ensuring low inflation. Table 1 provides an overview of the main distinctive features of the EU's ‘new’ gouvernement économique, focusing particularly on features that show a clear contrast in the 2020s, compared to the earlier blueprints from the 1990s. Financial instruments (EU level) Prevailing mode of governance Centralized, Commission in the lead. Decentralized, Commission as an orchestrator, together with other EU institutions, such as the ECB In short, this article argues that the European ‘green economy’ to support the green transition has superseded the older concept of gouvernement économique as an organizing principle of contemporary EU economic and financial sector governance. An integrated analysis of the recently adopted EU economic and financial sector governance policies and reforms as well as the (new) financial instruments launched in the aftermath of the Covid-19 pandemic yields three important findings summarized below, which form the axes of this article. First, the European Commission has reinforced and expanded its leading role in steering European economic governance through a mission-oriented policy approach (Mazzucato 2018), especially considering its leading role in the European Green Deal (EGD). Its leadership was shown by issuing the NGEU ‘corona recovery’ bonds and by monitoring the implementation of the Recovery and Resilience Facility (RRF) in the member states, now integrated in the European Semester. Second, now the Commission has substantial financial means which it can steer toward achieving the Union's long-term green transition. These expanded financial means become evident when we consider in an integrated way the traditional EU budgetary instruments in the multi-annual financial framework (MFF) 2021–2027, supplemented with the new EU investment mechanism NGEU to fund the green transition, foster the Union's economic recovery from the Covid-19 pandemic and the special financial assistance instrument European Stability Mechanism albeit outside the ‘regular’ EU decision-making framework. In fact, the EU is projected to become the fifth largest bond issuer by 2025, compared to the individual EU member states (European Commission 2023a). Third, the Commission works closely with the member states and with other EU institutions, such as the ECB, as an ‘orchestrator’ in the contemporary complex polycentric system of EU economic and financial sector governance. In contrast to earlier EU economic governance blueprints, the current approach does not seek further centralization and a hierarchical organization. Rather, it entails transferring more responsibility to and demanding more commitment from the member states in order to accommodate diverse national growth models, developmental trajectories and preferences (Ban and Helgadóttir 2022; Blyth et al. 2022; Hodson and Howarth 2023; Mertens et al. 2021). The Commission's interaction with the ECB is particularly important to unpack, as the ECB has taken a firm stance to support the transition to a carbon-neutral economy while, of course, staying within its policy remit of keeping prices stable and banks safe. Furthermore, inflationary pressures have become a challenge for citizens and businesses alike during 2021 and 2022. Rising inflation has negatively impacted citizens, while the rising interest rates to tame inflation have generated unintended consequences for bank balance sheets and, ultimately, for the stability of the European banking sector. These developments have prompted further actions by the ECB to reconcile the policy objectives of financial and economic stability, on the one hand, and price stability, on the other hand, especially in the aftermath of Covid-19 (Quaglia and Verdun 2023). The next sections elaborate on each of these three axes in turn. It is, of course, important to note that the concept of an EU gouvernement économique has a rather polarizing track record in European political economy. The earlier blueprints from the 1990s reflect heavily French economic thinking at the time, for example, former French Prime Minister Pierre Bérégovoy's proposals. These blueprints aimed for more coordinated fiscal and economic policies of the EU member states through the Stability and Growth Pact and the annual macro-economic policy evaluation cycles conducted by the Commission, which offered an unprecedented insight into national economic thinking and planning (see Howarth 2002 and Verdun 2000 for the role of French policymakers in this debate; Dyson 2002). However, critics of the concepts emphasized the contested adoption of the Maastricht Treaty in 1992, evoking connotations of supranational dirigisme, driven by a Commission detached from the member states' national economic priorities and concerns, even threatening to stifle vibrancy and innovation, thus potentially damaging the competitive edge of the ‘Northern core’ economies (Dyson 2002; Howarth and Verdun 2020). Since the early 2000s, the aptly named ‘post-functionalist’ turn (Hooghe and Marks 2009) has only given rise to a more polarized public opinion in the EU member states, greater Euroscepticism and more contestation regarding the place and the role of the EU in coordinating and guiding member states' national economic policies (Börzel 2016; Halikiopoulou 2018). Let us now take stock of the distinctive features of the recent EU economic and financial sector reforms to foster the green transition. To begin with, the European Commission has reinforced and expanded its leading role in steering European economic and financial sector governance, especially through leading the implementation of the EGD, issuing the NGEU corona recovery bonds and monitoring the implementation of the RRF, now integrated in the European Semester. It is notable that the Commission has opted not to work through hierarchical governance modes, such as centralization and maximum harmonization, which are increasingly seen as politically controversial, especially for the member states. To the contrary, in guiding the green economy transition, the Commission gives more space to the member states to choose their national economic policies in the RRFs, tailored to their own developmental priorities and objectives. The Commission has opted for a more accommodating approach in monitoring and guiding the implementation of the RRFs in the European Semester, perhaps reflecting criticisms of excessive dirigisme and top-down steering during earlier cycles, especially during the eurozone crisis (Schelkle 2017). Recognizing the threats posed by climate change and environmental degradation, the Commission led by Ursula von der Leyen launched the EGD in 2020, with the ambitious mission to make the EU ‘the first climate-neutral continent’ by 2050 (European Commission 2021). While this goal still echoes the so-called ‘Lisbon agenda’ to modernize the European economy and ensure its global competitiveness as well as social inclusion, the EGD displays the features of mission-oriented innovation policy (MOIP) approach (Mazzucato 2018). The EGD seeks to achieve no net emissions of greenhouse gases in the EU by 2050 and a shift toward a new economic growth model decoupled from resource use, inviting the active participation and contribution of the private sector and citizens (European Commission 2021). The Commission has explicitly relied on Mazzucato's (2018) ‘mission-oriented approach’ for the EU economy to navigate economic change in contemporary capitalism, considering the magnitude of the policy challenge to deliver on the EGD. According to this approach, coordinating public and private sector policies on a massive scale is necessary to radically change the mechanisms that govern the (economic) value distribution. New types of MOIP collaborations, especially public–private partnerships, are particularly important. This is visible in contemporary EU economic governance when we consider the ‘industrial policy’ component of the EGD. For example, the Commission (2021) has stressed that ‘the Green transition presents a major opportunity for European industry by creating markets for clean technologies and products’. It recognizes that the legislative and policy proposals implementing the EGD affect entire value chains in sectors, such as energy and transport, agriculture, construction and renovation, and have the potential for new, and more sustainable, job creation in the member states in these sectors through a more pro-active industrial policy. Especially since the mid-2010, there has been a clear rise and renewed attention given to EU industrial policy as well as greater integration of different industrial policy functions at the supranational EU level (Bulfone 2023; Di Carlo and Schmitz 2023). The interplay of functional, cultivated and political spillovers, driven especially by the Franco-German backing of more pro-EU industrial policy positions since 2016, explains the timing of the rise of this more ambitious and far-reaching EU industrial policy (Di Carlo and Schmitz 2023). Nevertheless, the nature of the policy area and related externalities explain why some areas, such as ‘clean’ energy production, have advanced faster than others (Di Carlo and Schmitz 2023; Prontera and Quitzow 2022). Second, now the Commission has substantial financial means, which it can mobilize to achieve the long-term green transition objectives of the Union. These expanded financial means become evident when considering in an integrated way the traditional EU budgetary instruments in the MFF 2021–2027 with the new EU investment mechanism NGEU to fund the green transition and foster the Union's economic recovery from the Covid-19 pandemic. The start of the implementation of NGEU in 2021 means that EU bonds are already here, even though both public opinion and key member states remain divided on the desirability (and viability) of common EU bonds as a ‘solidarity’ financial instrument to raise capital and pay up for common EU policy objectives. In fact, the Commission's (n.d.) recent rhetoric on debt issuance stresses that ‘it [the Commission] is a well-established name in debt securities markets, with a strong track record of successful bond issuances over the past 40 years’. Importantly, the recently adopted NGEU package marks a radical departure from previous EU economic and financial policy constrained by the ‘balanced budget’ rule at the EU level, with deficit spending precluded by the EU treaties. The Commission now has temporary powers to borrow from the international financial markets in order to finance NGEU and, consequently, implement the EGD (for more on the EGD, see Dyrhauge and Kurze 2023; Eckert 2021). In general, EU borrowing is executed using multiple instruments, including EU Bonds, EU Bills and NGEU Green Bonds (European Commission n.d.). There are precedents for joint EU borrowing with a very limited remit, for example, for Euratom, SURE (the EU's programme to finance short-term employment schemes across the EU and keep people in jobs during the Covid-19 pandemic) and the Macro-Financial Assistance+ programme for Ukraine, but NGEU Green Bonds scale up this borrowing considerably. In fact, the amount is such that the EU as an entity is projected to become the Union's fifth largest bond issuer by 2025, placed immediately after the four largest eurozone bond issuers, namely, France, Italy, Germany and Spain (European Commission 2023a). Furthermore, through issuing up to €250 billion of ‘green bonds’ as part of NGEU funding plans, the Commission will become the largest issuer of green bonds globally (European Commission 2023a). This significant development regarding the EU as a borrower further substantiates Braun and Gabor's (2020) findings about the growing ‘infrastructural entanglement’ of the EU (economic) institutions in financialization. Whereas Braun and Gabor (2020) unpacked how the ECB has ‘advocated and actively promoted, for monetary policy purposes, the development of shadow banking and shadow money’, this article extends their argument, showing that, furthermore, the Commission plays a leading role as an issuer of green bonds on behalf of the EU, deepening the EU's infrastructural entanglement with global financial markets. The financial backing to implement the EGD intersects in important ways with the EU's Covid-19 recovery fund, NGEU. At least one third of the investments from the NGEU financial package and the EU's 7-year budget (the MFF 2021–2027) have been pledged for financing the EGD (European Commission 2021). Loans from the European Investment Bank will also be mobilized. Taken together, the MFF 2021–2027 and NGEU have raised a total €2.018 trillion to implement the EU's policy priorities over the next 7 years, which is an unprecedented financial resource available at the EU level. The EU's regular long-term budget, the MFF, accounts for €1.210 trillion of the total amount and NGEU accounts for €806.9 million to supplement the regular EU budget. Furthermore, NGEU funding has been earmarked to top up the following MFF budgetary headings (in order of magnitude of the contribution): ‘Cohesion, Resilience and Values’ – €426.7 million (+ €776.5 from NGEU); ‘Natural Resources and Environment’ – €401 million (+ 18.9 from NGEU); and ‘Single Market, Innovation and Digital’ – €149.5 (+ €11.5 from NGEU). Third, the Commission now works closely with the member states and with other EU institutions, such as the ECB and EU agencies as an orchestrator in the contemporary complex polycentric system of EU economic governance. The orchestration analytical framework (Abbott et al. 2020) helps understand the new role of the Commission and the ECB in the EU's contemporary more complex system of polycentric economic governance. Orchestration is a form of indirect governance. The orchestrator works through the intermediary to influence the governance target, and it is ‘soft’ because the orchestrator often lacks authoritative control over the intermediaries and the targets in a classical principal-agent delegation sense (Abbott et al. 2020, p. 21). An orchestration approach may be desirable in contemporary EU economic governance to mitigate the effects of growing public opinion polarization and Euroscepticism, as the Commission relinquishes direct ‘control’ and seeks instead to co-create the national economic programmes together with the member state governments, allowing much more space for national discretion and national economic priorities. 1 On the one hand, the contemporary EU economic governance system is complex, polycentric and more decentralized simply because there are more relevant venues of policy-making in the multi-level EU governance system, considering also the EU's embeddedness in global governance (see also Schmidt 2023). On the other hand, complexity and polycentricity are magnified by the types of contemporary economic policy problems that the EU faces. These tend to be wicked policy problems, such as the climate crisis, that have multiple interconnected dimensions, and the solutions of one may the of solutions to policy and The Commission's interaction with the ECB is particularly important to unpack, as the ECB has taken a firm stance to support the transition to a carbon-neutral while of staying within its policy remit of keeping prices stable and banks 2022). On the one hand, inflationary pressures a challenge for citizens and businesses alike in the of 2022. On the other hand, rising bank interest rates to in inflation generated unintended consequences for balance sheets and, ultimately, for the stability of the European banking sector. Let us the tension between the economic growth policy and the low inflation policy especially from the of the Commission and the of the Union's economic and financial policies in that the Commission is more on economic especially in the implementation of the member states' green transition At a EU emphasized that the EU economy strong and growth between and and in after the Covid-19 pandemic. also stressed that ‘the fiscal stance of the past three years, with the monetary was to support the area economy we be of these and the economy’ (European Commission This is why the Commission's as part of the European the for a more fiscal but ‘the investments that are for common (European Commission the ECB has been with the of the economic growth policy and the low inflation The tension between these two policy objectives visible when we consider some of the key of the ECB during 2021 and 2022. Since the of the the ECB and the ECB have been very clear that the policy is to keep eurozone inflation below, but it was seen as a departure from the when the ECB in after a of its monetary policy that ‘it inflation the of the 2021). The ECB also it direct more its bonds to mitigate climate change p. thus globally as one of the main of bank climate in a global banking (see also 2023; 2022). For example, the ECB into climate change when one of the main to borrowing and economic as part of its economic the ECB (2021) that it that have to their carbon At the time, it is that the ECB the main decision-making has not been on how to a balance between the different policy objectives of the of the ECB are in of the new monetary and For example, of the Central has been a of ECB climate and a when the different policy objectives, such as keeping inflation in while financial stability and economic growth in the Union Bank 2023). of the Bank of France, has and member of the ECB has stressed that ‘the main banks their attention to climate change is the it will affect their to achieve their 2021). of the ECB have been more For of the between and 2021 and a member of the ECB for the ECB to its spending eurozone inflation of control and 2021). also that climate change and climate outside the remit of in three as was set to that in the in the ECB monetary policy to inflation and even the ECB policy to financial stability and the during the eurozone crisis and 2021). as inflation in the in in the ECB to from the economic growth policy to the low inflation In the raised the key ECB interest rates for the first in more than a to an to an of policy rates the ECB its interest in the eurozone interest since the global financial The ECB has to monetary policy since interest rates and its at an unprecedented to inflation towards the These actions the eurozone inflation to in but still in the ECB the so-called a to support the of monetary policy. to by the ECB the can be for of securities by eurozone member states that in financing not by to to the it is important to note that on the of the monetary policy and the amount of the is not the ECB a of discretion in the scale of the ECB a renewed on eurozone inflation in a in in 2022. that some EU such as the three states, unprecedented inflation rates to the of for example, war in Ukraine, energy chains and of that banks have to on their to their to ensure price stability will have to raise rates to that will deliver inflation in the ECB also to the low inflation policy by a to the bond and stressed that fiscal support for the eurozone economies be and This article stock of the recent policies adopted in the by two key actors in European economic and financial sector governance – the European Commission and the ECB – to advance the green transition toward a carbon neutral EU economy by 2050. that the new EU gouvernement économique of the can into larger financial means to support the green the traditional EU budget with newly set-up supranational investment funds available through NGEU. the mode of governance is polycentric and the Commission and the ECB as to the policies and actions of the member states and other EU and reconcile different policy objectives, such as economic growth and low inflation. At a on the of climate Pierre of the Bank of emphasized that climate policy an part of economic it is to public 2023). the of the Commission and the ambitious policies to advance the green transition will on in national economic policy and backing by the EU the and and the in the on of in at the of and the for their and on an earlier of this article. also to the in on of European for the and with concepts in European economic governance that we often take for
This chapter provides an overview of the developments, trends and perspectives of financial market infrastructures. In particular, it aims to examine the application of technologies for securities custody and settlement. It offers the legal background understanding in respect of securities which are held through banks and other intermediaries necessary to access the highly complex area of cross-border securities law. In doing so, it displays and discusses the relevant legal developments concerning the main initiatives at international and European level that are projected at enhancing the efficiency of post-trade processes related to traditional securities, such as by using distributed ledger technology (DLT). The chapter mainly focuses on international standards, EU legislation and recent legislative proposals as well as on German law as an example of a national legal framework.
1 Decentralized Finance from the Perspective of Czech Financial Regulation and MiCA Proposal Abstract Decentralized Finance constitutes a new system for allocating resources by using irreplicable digital data that can be processed within a predefined framework of automatic operations based on blockchain technology. Its development has brought not only new economic opportunities but also a number of risks and legal issues. Since Decentralized Finance is in its early stages, relevant legal questions relating to its positioning within the existing and forthcoming legal frameworks are still not firmly established yet. This thesis aims to answer those relating to the applicability of selected Czech financial regulations and the European Commission's Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, as well as validate the hypothesis that the wide scope of the MiCA Proposal could influence the ecosystem of Decentralized Finance. First, the important technical foundations of Decentralized Finance and their specifics were outlined, and relevant financial applications were established for further assessment. Subsequently, the applications were compared with the scope of the chosen Czech financial regulation, namely the Act on Payment System, the Act on Currency...
Application of regulatory mechanisms to decentralized financeDecentralized Finance (DeFi) is a rapidly emerging area of finance next to traditional centralized financial institutions with decentralized protocols that are blockchain-based or operate on another distributed ledger technology.DeFi leverages the power of smart contracts, which are self-executing contracts which may have the terms of an agreement between a buyer and a seller directly written in code.This technology enables financial transactions to occur without the need for intermediaries such as banks, allowing for faster, cheaper, and more transparent financial transactions (Bergt, 2020).As DeFi continues to grow, it is important to consider how regulatory mechanisms can be applied to ensure its safety and stability.This chapter will explore the application of regulatory mechanisms to DeFi coming from a centralized finance perspective.The term "smart contract" was coined by Szabo (1994): " A smart contract is a computerized transaction protocol that executes the terms of a contract.The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries.Related economic goals include lowering fraud loss, arbitration and enforcement costs, and other transaction costs.Some technologies that exist today can be considered as crude smart contracts, for example POS terminals and cards, EDI, and agoric allocation of public network bandwidth." The name smart contract, which refers to a contract, is rather misleading, especially since a smart contract represents a tamper-proof, self-verifying, and self-executing script.While such a script can indeed also represent a contract in a legal context, since contracts can also be concluded verbally or implicitly, not all smart contracts are actually contracts or even smart for that matter (Bergt, 2020).In the words of Buterin ( 2018): "To be clear, at this point I quite regret adopting the term 'smart contracts'.I should have called them something more boring and technical, perhaps something like "persistent scripts."In his manifesto on smart contracts, Szabo (1994) suggests that the considerations for smart contracts go even further back to the so-called agoric computing, which has its origins in the 1970s and 1980s (cp.
Decentralized finance (DeFi) is a novel financial model, that uses the distributed ledger technology. It aims to offer financial services such as trading, investing, peer-to-peer borrowing and lending, access to fiat currencies, transfer of money globally, and managing insurance and credit services. Further, these services are offered without relying upon intermediaries like banks or other financial institutions. This leads to, both lower costs and entry barriers. On the other hand, as of today, there is no safety net for such activities. Therefore, its benefits should be balanced with its associated risks.
Mit der Pilotregelung für DLT-Marktinfrastrukturen1 (im Folgenden: Pilotregelung) ist der erste Rechtsakt des Digital Finance Package der EU2 in Kraft getreten. Die Pilotregelung soll den Einsatz der Distributed-ledger-Technologie (im Folgenden: DLT) für den Handel und die Abwicklung von Aktien, Anleihen und anderen Finanzinstrumenten ermöglichen und die Entwicklung eines Sekundärmarkts für security tokens fördern. Ab 23.3.2023 ist sie vollständig anwendbar. Der vorliegende Beitrag gibt einen detaillierten Überblick über den Hintergrund und das Regelungskonzept der Pilotregelung und behandelt ausgewählte Einzel- und Folgefragen.
Abstract This article examines current technological trends in the securities post-trading system and the role of law in shaping these developments. Against this backdrop, we analyse (i) recent initiatives that aim at technologically improving the traditional post-trade system, (ii) projects that aim at enhancing the efficiency of post-trade processes related to traditional securities by using distributed ledger technology and (iii) post-trade issues related to the rise of crypto-assets and decentralised finance. We argue that the current role of law in shaping these technological trends is different in these three contexts. Regarding crypto-assets, the law can be likened to the hare in the Brother Grimms’ well-known fairy tale: It struggles in vain to keep up with developers in the crypto-asset system (who represent the hedgehog in the fairy tale). With regard to projects that aim at bringing distributed ledger technology to the post-trading of traditional securities, the roles are, in our view, reversed – the law plays the role of the hedgehog that, maybe unfairly, prevents the innovators (the hare) from succeeding. Finally, as regards two important technological trends in the traditional post-trading system that we analyse in this article different relationships emerge: In one case, the law (as hedgehog) “coaches” the industry (as hare) in its quest to implement technological improvements. In the other case, the law (as hedgehog) needs to prod the industry (the hare) into relevant action.
This article presents the results of a cross-disciplinary applied study exploring investors’ protections in the context of distributed ledger technology (DLT) smart contracts. Fusing legal, business, and technical perspectives, we developed a framework for protection from non-commercial risks for stablecoins, taking advantage of DLT and AI. A key concept we propose is the monitoring of disinformation and fake news to prevent malicious parties from abusing our solution. Based on the similarities between central bank digital currencies (CBDCs) and stablecoins, we propose scaling up our results to all future internet investments performed without face-to-face contact between the investor and the company.
S ubrzanim razvojem tehnologije i informatike u 21. stoljeću dolaze velike promjene u načinu ljudskog življenja i djelovanja. Svakodnevni život postaje sve brži i dinamičniji zbog razvoja računala i interneta, a ljudi objeručke prihvaćaju nove tehnologije i pokušavaju ih maksimalno implementirati u svakodnevni život. Decentralizirane autonomne organizacije (dalje DAO) su računalni programi bazirani na blockchainu koji omogućuju sudionicima da kroz predlaganje i glasanje o odlukama koje dođu na dnevni red odlučuju o načinu korištenja resursa organizacije (upravljanje community walletom) te samim time upravljaju s budućnosti organizacije. Koliko koji član ima prava glasa u DAO-u ovisi o količini upravljačkih (governance) tokena koje posjeduje. Ovaj način određivanja količine prava glasa donekle podsjeća na ustroj u dioničkom društvu, no zbog nedostatne pravne regulacije DAO-a i nedostatka mogučnosti inkorporacije kao društva kapitala zakonodavac u Hrvatskoj i svijetu ima tendenciju DAOe smatrati ortaštvom u slučaju spora. Podvođenje DAO-a pod definiciju ortaštva može biti naročito opasno za članove jer ne uživaju zaštitu zida pravne osobnosti . U svom radu obradio sam pravni status DAO-a, osnivanje DAO-a i sudjelovanje članova u DAO-ima, a ponajprije su objašnjeni termini kao što su decentralized finance (DeFi), blockchain i pametni ugovori.
Regulating the Unregulateable The regulation of virtual assets has been on the legislative agenda for many years. The elaboration of a user-friendly regulatory system, in particular, on a global (or at least in Europe) scale, is more than likely over the next few years. Virtual assets are a special, unprecedented category of assets, and their emergence and proliferation pose new regulatory challenges in several areas, such as their issuance, the supervision of operations and transactions related to them (e.g. stock exchange services, lending, and other financial activities), furthermore, important issues arise in the field of taxation, accounting, and securities law with the emergence of the blockchain and distributed ledger technology-based securities. In recent years, at the state level, one could also witness comprehensive regulatory efforts and innovative regulatory attempts in certain European countries in various related areas, particularly in Malta, France, Germany, Liechtenstein, and Switzerland. This study presents the key elements, objectives, and characteristics of regulatory solutions in selected European countries. In September 2020, the European Commission presented a six-element regulatory package for the uniform regulation of virtual assets and markets at EU level. Accordingly, this paper pays particular attention to the European Commission’s regulatory package, reviewing and evaluating its solutions, main elements, and regulatory methods. Last but not least, I present some related issues that may be considered regulatory gaps that have been left unregulated in both national legislations and the European Commission’s proposal.
Abstract 828 The use of digital platforms in the financial sector requires automated processes in order to collect the large volumes of data which will allow firms to create a shared understanding around rules through technological applications. The UK Financial Conduct Authority launched innovation programmes, i. e. a regulatory sandbox, to assess technologies and expedite the delivery of fintech products. This initiative has been followed by the European Digital Finance Package, which introduced the Pilot Regime for market infrastructure based on distributed ledger technology. Albeit a laudable initiative, the EU sandbox model may face obstacles on account of the different approaches taken by Member States in relieving regulatory requirements which can create a perverse incentive to circumvent prudential rules in the context of risk assessment. This article examines the impact of sandboxes on the operation of digital platforms and considers the extent to which decision-making processes are amenable to digital treatment, and what will be the implications for the quality of regulation and the exercise of judgement by the supervisory authority. It argues that the application of regulatory sandboxes can promote more effective compliance processes, while ensuring transparency and accuracy of enforcement actions. 829
Financial technology (Fintech) is disrupting finance at a rapid pace, forcing a rethink on legacy financial regulation. In particular, the question of the regulatory treatment of crypto-assets and blockchain and distributed ledger technologies (DLTs) has been a major focus of regulators and market participants since the launch of Bitcoin in 2009, and further still since the crypto bubble of 2018.1 Yet, a more general question is even more important: How should innovation and the use of only partially understood technology be regulated? In Europe, this was for a long time up in the air. Since the European Commission’s Fintech Action Plan of 2018 signalled a determination to make beneficial use of technical innovation,2 the Commission has taken a broad approach by adopting on 24 September 2020 a new Digital Finance Package.3 That package comprised the new Digital Finance Strategy (DFS 2020)4 combined with a renewed Retail Payments Strategy,5 in an effort to ‘boost Europe’s competitiveness and innovation in the financial sector, paving the way for Europe to become a global standard-setter’.6 The Commission ‘aims to boost responsible innovation in the EU’s financial sector, especially for highly innovative digital start-ups, while mitigating any potential risks related to investor protection, money laundering and cyber-crime’.7
Abstract This chapter explains why policymakers should take a precautionary approach to fintech innovations. It devotes considerable time to exploring the catastrophic consequences of the financial crisis of 2008, and the financial innovations that helped cause it. It also engages in a thought experiment, imagining how distributed ledgers and smart contracts could have made the last crisis even worse had they existed in the mid-2000s. The purpose of this historical review and thought experiment is to vividly demonstrate the potential harms associated with new financial technologies: as a society, we tend to support precautionary regulation of pharmaceuticals and self-driving cars because we recognize their potential to threaten human lives, but we’re less comfortable with precautionary regulation intended to protect our financial system. To help overcome this reluctance toward precautionary regulation of new financial technologies, this chapter demonstrates that the costs of financial crises are not just economic, but also tear at the fabric of our society.
Abstract This chapter uses mobile payments and distributed ledger business models and technologies as case studies to demonstrate how operational problems in the payments system can trigger and transmit financial distress. It also examines proposals for central bank digital currencies (CBDCs) and proposals to use distributed ledger technology for post-trade processing, concluding that while there are strong use cases for these types of fintech innovations, they are not without financial stability risks. This chapter therefore stresses the need for a new type of “macro-operational” regulation that responds to the potential systemic interactions of operational problems. Finally, this chapter considers the risks associated with increased reliance on a small group of third-party technology vendors (particularly cloud computing vendors).