UK, London — Europe prepared to lead the world in regulating the freewheeling cryptocurrency industry at a time when prices have plunged, wiping out fortunes, fueling skepticism and sparking calls for tighter scrutiny.
The
European Union took a first step late Wednesday by agreeing on new rules
subjecting cryptocurrency transfers to the same money-laundering rules as
traditional banking transfers.
A much
bigger move was expected as EU negotiators hammer out the final details late
Thursday on a sweeping package of crypto regulations for the bloc’s 27 nations,
known as Markets in Crypto Assets, or MiCA.
Like the
EU’s trendsetting data privacy policy, which became the de facto global
standard, and its recent landmark law targeting harmful content on digital
platforms, the crypto regulations are expected to be highly influential
worldwide.
The EU
rules are “really the first comprehensive piece of crypto regulation in the
world,” said Patrick Hansen, crypto venture adviser at Presight Capital, a
venture capital fund.
“I think
there will be a lot of jurisdictions that will look closely into how the EU has
dealt with it since the EU is first here,” Hansen said.
He
expected authorities in other places, especially smaller countries that don’t
have the resources to draw up their own rules from scratch, to adopt ones
similar to the EU’s, though “they might change a few details.”
Under
the Markets in Crypto Assets regulations, exchanges, brokers and other crypto
companies face strict rules aimed at protecting consumers.
Companies
issuing or trading crypto assets such as stablecoins — which are usually tied
to the dollar or a commodity like gold that make them less volatile than normal
cryptocurrencies — face tough transparency requirements requiring them to
provide detailed information on the risks, costs and charges that consumers
face.
The
rules will help novice crypto investors avoid falling victim to frauds and
scams that regulators have warned are widespread in the industry.
“That’s
a huge benefit in this space, especially for someone who has absolutely no idea
where to go to or who to seek out or where to put my money into,” said Jackson
Mueller, director of policy and government affairs at Securrency, a blockchain
infrastructure company.
Providers
of bitcoin-related services would fall under the regulations, but not bitcoin
itself, the world’s most popular cryptocurrency that has lost more than 70% of
its value from its November peak.
The
European rules are aimed at maintaining financial stability — a growing concern
for regulators amid a string of recent crypto-related crashes. For example, the
stablecoin TerraUSD imploded last month, erasing an estimated $40 billion in
investor funds with little or no accountability.
The
meltdowns have spurred calls for regulation, with other major jurisdictions
still drawing up their strategies. In the U.S., President Joe Biden issued an
executive order in March on government oversight of cryptocurrency, including
studying the impact on financial stability and national security.
Last
month, California became the first state to formally begin examining how to
broadly adapt to cryptocurrency, with plans to work with the federal government
on crafting regulations.
The U.K.
also has unveiled plans to regulate some cryptocurrencies.
A few
European countries, like Germany, already have basic crypto regulations. One of
the EU’s goals is bringing rules in line across the bloc, so that a crypto
company based in one country would be able to offer services in other member
states.
The EU
rules, which would still need final approval and are expected to take effect by
2024, include measures to prevent market manipulation, money laundering,
terrorist financing and other criminal activities.
On
Wednesday, EU negotiators signed a provisional agreement for the bloc’s first
rules on tracing transfers of crypto assets like bitcoin, which is aimed at
clamping down on illicit transfers and blocking suspicious transactions.
When a
crypto asset changes hands, information on both the source and the beneficiary
would have to be stored on both sides of the transfer, according to the new
rules. Crypto companies would have to hand this information over to authorities
investigating criminal activity such as money laundering or terrorist
financing.
“For too
long, crypto-assets have been under the radar of our law enforcement
authorities,” one of the lead EU lawmakers negotiating the rules, Assita Kanko,
said in a statement. “It will be much harder to misuse crypto-assets and
innocent traders and investors will be better protected.”
The EU
institutions are working out the technical details before the crypto tracing
rules receive final approval.
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Kelvin Chan on Twitter at https://www.twitter.com/chanman.