EBA says EU crypto regulation may be 'needed'
Written by Hannah McGrath
The EU’s banking watchdog has said regulation may be needed to ensure a Europe-wide approach to regulation of cryptocurrencies and digital assets.
In a report published yesterday, the European Banking Authority (EBA) said a year-long investigation into the regulation of cryptoassets such as Bitcoin and Ethereum found that there may be a need to “level the playing field” after finding increasing divergence in different countries’ approach to regulation.
Currently, cryptoassets - digital currency and tokens secured by strong cryptography - are traded on exchanges and launched through Initial Coin Offerings (ICOs) - the digital equivalent to IPOs - offering a blockchain equivalent to a share in a venture or company.
The ICO process and the exchanges used to trade the digital assets are not currently subject to EU-wide MiFID legislation, which governs financial transactions within the bloc, with different countries adopting different attitudes to regulation and investor protection.
In March last year, Bank of England governor Mark Carney said that cryptocurrencies were too volatile to provide a viable digital system of money, but later said the bank is open minded on investigating the issue of a Central Bank Digital Currency (CBDG), which would be underwritten by the state and therefore offer consumers greater protection.
The EBA cited the UK’s consideration of a ban on crypto-derivative products based on speculating on the price of volatile digital assets. It also warned that due to a lack of uniformity in laws, there is a risk that cryptoasset companies could head to countries offering a lighter regulatory environment, such as Malta and Gibraltar.
The value of Bitcoin peaked at $20,000 in December 2017, but has plummeted in value by nearly three quarters since then. At the time of publication it was trading at $3,789.
The report said that given the rapid pace of change in the cryptoasset market and the diversity of laws aimed at regulating it, it would be necessary for the European Commission (EC) to carry out its own ‘cost/benefits’ review to determine whether cryptoassets could be brought within the scope of current financial rules or if new EU-wide legislation is required.
A statement from the regulator also warned that cryptoasset activities could also give rise to other risks, including money laundering and fraud – an issue requiring “further analysis” from the EC.
The EBA stated: “Typically, crypto-asset activities do not constitute regulated services within the scope of EU banking, payments and electronic money law, and risks exist for consumers that are not addressed at the EU level.
“As a result of the development of national regulatory responses, divergences between the member states are starting to emerge presenting risks to the level playing field. Market developments also point to the need for a further review of EU anti-money laundering legislation.”
Adam Farkas, executive director of the EBA, said that its warnings to consumers and institutions on virtual currencies remain valid.
“The EBA calls on the European Commission to assess whether regulatory action is needed to achieve a common EU approach to crypto-assets. The EBA continues to monitor market developments from a prudential and consumer perspective."