On 12 December 2024, the European Banking Authority (‘EBA’) published its ‘Report on tokenised deposits’ (‘EBA Report’). [1] The EBA Report highlights innovative developments, in particular the mapping of bank deposits based on distributed ledger technologies (‘DLT’) and compares them with similar products such as e-money tokens (EMT). At a time when the digitalisation of finance is progressing rapidly, this EBA Report provides valuable insights into the opportunities and challenges of ‘bank’ money (known as book money or scriptural money) based on DLT (‘tokenised scriptural money’) and its regulatory classification. This article analyses the key aspects of the EBA report and highlights the similarities and differences between e-money tokens and tokenised scriptural money.
Table of Contents
Introduction
Since the adoption of the Markets in Crypto-Assets Regulation (‘MiCAR’), tokenised (i.e. DLT-based) assets that can also be used as a means of payment have been regulated uniformly throughout the EU (e-money tokens and asset-referenced tokens, so-called ‘stablecoins’). Whether other ‘means of payment’ such as tokenised deposits will also be (co-)regulated by MiCAR is controversial. This raises one central question in particular, which stands like the proverbial elephant in the room and which, in our opinion, has not yet been answered (satisfactorily): What is actually the difference between tokenised bank money[2] (‘CBMT’) [3] and e-money tokens (‘EMT’)[4]?
If a credit institution offers the (‘centralised account-based’) scriptural money on a DLT basis (and thus ‘decentralised account-based’), is it still a (special form? of) ‘deposit’ within the meaning of Art. 2 para. 4 b) MiCAR, which is excluded from the scope of MiCAR?
The same question of demarcation also arises with conventional e-money, which – in contrast to bank money – has different forms. The e-money can be stored centrally either on (i) bearer instruments (‘token-based’) or (ii) on servers of the e-money issuer (‘account-based’). Is conventional e-money that is only issued and used for payments by means of DLT automatically an e-money token, even if no value stability is sought by reference to an official currency? At least for the e-money token (‘EMT’), the EU legislator has opted for a (non-systemic!) approach under supervisory law, according to which e-money tokens are regulated under Title IV (Art. 48 et seq.) of MiCAR, which in turn makes partial reference to E-Money Directive 2. Whether this approach should also apply to the regulatory classification of tokenised deposits is controversial.
EBA-Report on Tokenised Deposits (& demarcation of EMT)
The EBA report is dedicated to the tokenisation of deposits by credit institutions. It first clarifies what is meant by tokenisation in the context of assets, namely the process of representing rights in digital form using DLT or similar technologies. The tokens can be represented directly in the DLT (‘on-chain’) (so-called native tokens[5]) or outside the DLT (‘off-chain’) (so-called non-native tokens[6]). The EBA defines a ‘tokenised deposit’ as the tokenisation of a deposit, i.e. the recording of a deposit holder’s claim against the credit institution on the basis of DLT.
In addition to presenting the opportunities and challenges of tokenised deposits, the EBA report also aims to define ‘indicative characteristics that may be used to distinguish tokenised deposits from EMTs issued by credit institutions under MiCAR’.
Key-Takeaways…
- According to Art. 2 (4) b) MiCAR, deposits within the meaning of Art. 3 of the Deposit Guarantee Schemes Directive (Directive 2014/49/EU) are excluded from the scope of MiCAR. The EBA has already stated that there is no definition of the term ‘deposit’ for the purposes of the CRR/CRD (and refers to its publications from 2014 and 2020). [7]
- The EBA also dispels the misconception – also widespread in Germany – that credit institutions only issue bank money and e-money institutions only issue e-money. Of course, credit institutions can also issue e-money[8], so the EBA also addresses the issue of both products (CBMT and EMT) by a credit institution in the report.
- The EBA classifies different models of ‘tokenised deposits’ as (i) ‘account-based’ and (ii) ‘token-based’.
- Most cases of ‘tokenised deposits’ known to the EBA are ‘account-based’, i.e. the claim of the deposit holder is recorded on the DLT and is linked to their bank account so that the ‘tokenised deposit’ cannot be transferred (like a bearer instrument, for example) to another person (who at least does not also hold an account with the same bank).
- The token-based model is similar in design to a bearer instrument, whereby the token can be transferred (or rather passed on) directly from one person to another. The EBA notes that the token-based model still needs to be examined and categorised accordingly under supervisory law. The EBA report only deals with the account-based model.
- The distinction between CBMT and e-money tokens poses a challenge, as both contain a claim against the issuing credit institution.
- The EBA compares the characteristics of CBMTs and e-money tokens in a table (see Annex 1 to this article). The EBA assumes an account-based CBMT and contrasts this with an e-money token that is only designed as a bearer instrument (and is therefore token-based).
This assumption excludes the following cases:
- Token-based CBMTs (in contrast to „account-based“ CBMTs) &
- Account-based EMTs (in contrast to ‘token-based’ EMTs, i.e. as ‘bearer instruments’).
… and other ambiguities
It remains unclear why the EBA only compares the ‘account-based’ CBMTs with the ‘token-based’ EMTs as ‘bearer instruments’ in its table. This raises a number of questions:
- Is the ‘bearer instrument’ only reserved for the EMT?
- What would happen if, for example, PayPal issued its account-based e-money on the basis of DLT (e.g. the blockchain)? Would it then not be categorised as an EMT?
- And: How should a token-based deposit be categorised? Is it still a CBMT (probably yes?) or is an EMT to be assumed (probably no?)? It is then questionable whether a token-based deposit could possibly be classified as conventional e-money (as a ‘bearer instrument’, i.e. ‘token-based’)? After all, the EBA makes it clear that a careful examination of the regulatory categorisation would have to be carried out first.[9]
- The EBA makes it relatively easy for itself by comparing account-based (CBMT) vs. token-based (EMT). Several differences listed in the EBA table are based precisely on these different characteristics between ‘account-based’ and ‘token-based’. Example:
- In the case of an account-based CBMT, a continuous contractual relationship between the credit institution and the customer (deposit holder) is assumed. In the case of a token-based EMT, however, this is missing as it is inherent to the bearer instrument. This EBA view is in line with the EBA’s ‘new’ interpretation of the definition of e-money.[10] Accordingly, the e-money payment requires a transfer of the “monetary assets”. The EBA also makes this clear for EMTs when it states in the EBA report on page 18: ‘EMTs are transferable private liabilities to other prospective holders, without altering the claim on the issuing credit institution’. The transfer creates a contractual relationship between the new e-money holder and the issuer (e-money issuer). Accordingly, there is no ‘continuous contractual relationship’ between the issuer and the previous e-money holder.
- An EMT is also suitable as a settlement asset because it is transferred as a bearer instrument in a payment transaction. In the case of a CBMT – according to the EBA’s argument – the payer’s claim against his bank is not transferred, but the payee receives a claim against his bank and an interbank payment is made in parallel for clearing and settlement. [11]
- The EBA apparently assumes a multi-issuer constellation for account-based CBMTs. Conversely, in the case of a single issuer (proprietary blockchain or closed account system), the account-based CBMT would also have to be recognised as a ‘settlement asset’.
Conclusion
The EBA is addressing a hot topic for practitioners and, with the EBA report, is providing the first insights from a supervisory authority that is tackling the difficult issues surrounding the distinction between tokenised deposits and e-money tokens (at least to some extent). Unfortunately, not all constellations are analysed, as the EBA deliberately excludes the account-based EMT and token-based CBMT models. This may be due to the misconception that the EBA assumes that the market presence and demand for ‘tokenised deposits’ is (still) low. This may be due to the fact that there is still considerable legal uncertainty, i.e. if there were more legal certainty, there would certainly be more CBMTs on the market. Based on this, the EBA does not (yet) see any need for action to eliminate regulatory uncertainties.
Die EBA widmet sich einem für die Praxis brandaktuellen Thema und gibt mit dem EBA-Report erste Einblicke einer Aufsichtsbehörde wieder, die sich den schwierigen Fragen zur Abgrenzung zwischen tokenisiertem Giralgeld und E-Geld-Token (zumindest ansatzweise) stellt. Leider werden nicht alle Konstellationen beleuchtet, da die EBA bewusst die Modelle account-based EMT sowie token-based CBMT ausgeklammert. Dies mag dem Irrglauben geschuldet sein, dass die EBA von einer bislang (noch) geringen Marktpräsenz und Nachfrage von „tokenisierten Einlagen“ ausgeht. Dies mag möglicherweise daran liegen, dass noch eine erhebliche Rechtsunsicherheit herrscht, d.h. würde es mehr Rechtssicherheit geben, würde es sicherlich auch mehr CBMT auf dem Markt geben. Darauf basierend sieht die EBA derzeit (noch) keinen Handlungsbedarf, um aufsichtsrechtliche Unklarheiten zu beseitigen.
[1] The EBA assesses potential benefits and challenges of tokenised deposits | European Banking Authority
[2] Frequently used synonyms: tokenised deposit or Commercial Bank Money Token („CBMT“).
[3] CBMTs can be designed to be both ‘account-based’ and ‘token-based’.
[4] EMTs can be designed to be both ‘account-based’ and ‘token-based’.
[5] Native tokens refer to tokens that can be issued, stored and transferred on a DLT, but which do not represent rights in relation to tangible and/or intangible assets or services outside the DLT, see EBA report, p. 6.
[6] Non-native tokens are tokens that represent rights to tangible and/or intangible assets or services that exist outside of DLT, see EBA report, p. 6.
[7] See EBA Report to the European Commission on the perimeter of credit institutions established in the Member States, November 2014 and Opinion on matters relating to the perimeter of credit institutions, November 2014 and EBA Opinion on elements of the definition of credit institution under Article 4(1), point 1, letter (a) of Regulation (EU) No 575/2013 and on aspects of the scope of the authorisation, September 2020.
[8] See also our blog-post „Deposit from the credit institution and e-money (only) from the e-money institution?“, available at: https://paytechlaw.com/en/deposit-from-credit-institution-e-money/
[9] See EBA-Report, p. 14, „careful assessment against the applicable regulatory framework, and to determine its appropriate regulatory classification“.
[10] See our blog post ‘EBA specifies e-money definition’, available at https://paytechlaw.com/en/eba-specifies-e-money-definition-what-does-this-mean-in-practice/
[11] See also EBA-Report, p. 18 (margin number 40).
