EU pushes hard for crypto regulation

The regulatory front for crypto has been rough in recent weeks as EU regulators seek information on all transactions.

While crypto acceptance is growing, the push for accountability is also intensifying.

On Monday, April 14, the EU’s committee, Economic and Monetary Affairs, adopted a new position on rules on crypto-assets with 31 votes to 4 with 23 abstentions. They are intended to boost users’ confidence and boost the development of alternative payment methods and digital services.

MEPs’ key provisions for those issuing and trading crypto-assets (including asset-referenced tokens and e-money tokens) cover transparency, disclosure, authorization, and supervision of transactions.

The EU believes this will help consumers “be better informed about risks, costs, and charges.”

Additionally, the text includes measures against market manipulation to prevent money laundering, terrorist financing, and other criminal activities; this means no more anonymous transactions.

The European Union announced new rules requiring all crypto transactions to disclose the parties involved in the transaction. The legal framework aims to support market integrity and financial stability by regulating public offers of crypto-assets.

EU Press sectary Dorota Kolinska explained, “crypto-assets, including cryptocurrencies, are neither issued nor guaranteed by a central bank or a public authority. They are currently out of the scope of EU legislation. This creates consumer protection and financial stability risks, leading to market manipulation and financial crime. The draft legislation differentiates between crypto-assets, asset-referenced tokens (ARTs), stablecoins, and e-money tokens primarily used for payments.”

Additionally, the EU is introducing a more comprehensive framework for regulating all financial service providers and issuers of crypto assets in the EU called MiCAR

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These laws may have been enacted because of increased financial crime.

For instance, cryptocurrencies have been the standard means of payment for users of dark web platforms since the onset of the first significant marketplace in 2011, Silk Road.

Dark web transactions are estimated to total EUR 1.5 billion (USD 1.7 billion) in 2020; to hide their illicit profits, criminals must use cryptocurrencies and circumvent cryptocurrency tracking, according to Europol. 

Push back from the crypto community 

Leaders in the crypto community condemned the new rules, integrating into the European Union’s complex policymaking system. 

Diana Biggs, Chief Strategy Officer at DeFi Technologies, explains that there will be negative consequences, “while the proposed regulations aim to increase users’ confidence in the digital asset market and support the development of blockchain technologies, it will accomplish precisely the opposite. These proposals, if adopted, will make Web3 excessively burdensome for European citizens and companies and will have unintended negative consequences for citizens’ privacy. Europe risks losing out on this next iteration of the internet, as it did in Web2, by forcing out a nascent but high-growth sector of its economy and the enormous potential that will come with it.” 

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Diana Biggs

“These proposed regulations are concerning to me not just because of the implications for EU companies but also because of their impact on the EU-crypto industry and citizens. I began the initiative to submit a letter — signed by a coalition of prominent Web3 companies, whose operations in the EU would be hindered or jeopardized — because the EU must remain a competitive market for these innovative, ground-breaking companies. The groundswell of support in such a short amount of time indicates the importance that these rules be revisited and that our suggestions be included.”

The document asked that decentralized finance projects be excluded from the requirements to register as legal entities and that decentralized stablecoins not be regulated under the MiCA.

Weaponized regulation 

On this particular matter, Yana Afanasieva, founder of Competitive Compliance, points out that the “financial industry should not be weaponized or used for political activism. The financial industry should focus on moving funds, and enough regulations and obligations are surrounding this already. Adding yet another obligation to incorporate climate change factors somehow is not a reasonable expectation. I don’t think it will be enacted. ESMA already regulates securities and investor protection, so there is nothing new, and EBA regulates e-money and payments. It does not add anything to the MICA draft at all.

Biggs agrees, “regulation, if done properly, will provide clarity and positively benefit the industry, but only if we get it right — balancing freedoms with protections, following data, adapting to new technical realities, and enabling growth and innovation within effective frameworks.”

Global regulation

Regulation is becoming more stringent across the globe.

The US Security and Exchange Commission (SEC) SEC posted a new guideline suggesting crypto exchanges list the digital assets of their customers as assets and liabilities. Additionally, companies that offer crypto services and products in the UK need to register with the Financial Conduct Authority (FCA), as covered earlier this month.

As international regulators look to standardize the industry in the face of growing economic nationalism in the world’s industrialized countries and decentalisation in banking, they are looking to where the energy and appetite are for unity. 

Related: FCA warns operators of crypto ATM closures

There may be an increasing demand for global standards for fintech going forward.

  • Helen Femi Williams is a freelance journalist and podcaster interested in fintech, politics, economics, and their intersections. She is the host of the letsgetlitical podcast, a fortnightly show interviewing guests from all different sides of the political spectrum, in partnership with the Mozilla Foundation. Prior to this role, she worked as an innovation consultant developing insurtech and fintech products and ideas for brands, startups, and major corporations. She studied International Relations at the University of Nottingham (UK and Malaysia).