EUROPEAN UNION FINALIZES RULES GOVERNING CRYPTO

The European Union (EU) has settled on a coherent set of regulations to govern digital assets throughout the 19-country bloc, relieving concerns of patchwork rules that change from nation to nation. 

Exchanges and other crypto-related services would need to be authorized by an EU regulating agency before operating in any single country. 

The new set of rules, called the Regulation on Markets in Crypto-Assets, also tightens protection for consumers and leaves service providers liable if they lose customers’ assets through hacks or other mistakes. 

Companies also would be required to document and report their environmental impact, a particular concern regarding the huge electricity demands by crypto miners, which we reported in “Bitcoin Miners’ Massive Energy Use Comes Under Fire” (5 Apr 2022).  

Companies issuing stablecoins—crypto assets whose value is tied to the euro or some other non-digital medium of exchange—would need to have an office in the Eurozone and a “sufficiently liquid reserve.”  

In addition crypto firms would have to implement internal policies and controls to comply with financial sanctions the EU might impose or already has.  

EU regulators will analyze and tweak the draft regulations over the next 18 months.   

The rules are being proposed after a rolling, eight-month crash among cryptocurrencies that have seen some of the most popular, including Bitcoin, lose 70 percent or more of their value since last November.  

“Recent developments on this quickly evolving sector have confirmed the urgent need for EU-wide regulation,” French finance minister Bruno Le Maire said in comments quoted by the Financial Times.  

“We will have a new crypto sheriff in the EU,” Ernest Urtasun, a member of the EU parliament, told the FT.  

The EU is “moving from the Wild West of unregulated, risky digital assets to a safer crypto sphere,” he said.  

“This will bring regulatory certainty, reduce fragmentation, and underpin the development of a robust, well-functioning market,” James Kemp, managing director for AFME, a group that lobbies on behalf of investment banks. 

The new suite of rules followed by one day the EU’s announcement of strictures on crypto firms designed to prevent using crypto to launder money.     

TREND FORECAST: Because crypto firms operate internationally, some EU regulations will cover transactions in the U.S. Companies will not want to manage different compliance schemes for different regions.  

The new rules also will help shape crypto regulation in the U.S.  

As we have reported in “SEC Push to Regulate Crypto” (7 Dec 2021) and other articles, the U.S. Securities and Exchange Commission (SEC) has been angling for years to drop a net of regulations on digital assets.  

Europe’s draft gives the SEC a blueprint for its own rules, which SEC chair Gary Gensler can use to prod Congress to authorize broader federal regulatory authority over crypto.