European Parliament Calls for Tighter Oversight of Global Cryptocurrency Market

The potential for regulatory arbitrage and the decentralized nature of sure crypto belongings underscore the necessity for some degree of harmonization in regulation throughout main jurisdictions, argues a brand new report revealed by the European Parliamentary Analysis Service (EPRS).

The report’s suggestions embody enhanced oversight from non-European Union (EU) regulators to make sure better stability and improvement within the international cryptocurrency market.

The report additionally highlights issues about numerous channels by means of which the EU’s monetary system and autonomy should still be in danger, significantly because it stays reliant on coverage actions taken by non-EU international locations inside the scope of the Markets in Crypto-Property Regulation (MiCA)—the EU-wide regulatory framework for crypto belongings that’s set to be applied in December 2024.

“Present regulation in non-EU international locations raises questions on monetary stability, because the international monetary establishments could also be unable to deal with massive value variations –volatility – and the losses incurred by shocks in crypto-asset markets,” the report acknowledged.

The authors additionally pointed to the “interconnectedness of worldwide monetary markets,” which—together with the potential for regulatory arbitrage and the decentralized options of sure cryptocurrencies—”do create the need for a level of convergence in regulation between key jurisdictions.”

Crypto belongings regulation divergence

One key focus of the report is the regulatory panorama in america, which it describes as “fragmented” as a result of lack of a federal-level crypto-asset regime.

The latter “allowed substantial divergence amongst states, which have adopted quite a lot of regulatory approaches,” reads the paper.

One such instance is the State of New York, which in 2015 launched the so-called “BitLicense” in 2015, requiring cryptocurrency exchanges to share in-depth details about their operations with the state’s Division of Monetary Providers and to satisfy “Know-Your-Buyer” (KYC) necessities.

Because of this, a number of main crypto corporations, together with ShapeShift and Kraken, opted to cease serving New York residents and curtail their operations inside the state.

“On the different finish of the regulatory spectrum, the State of Wyoming stands out as a ‘crypto-friendly’ state, choosing a useful authorized standing for blockchain expertise companies within the type of ‘decentralized autonomous organizations’, a kind of restricted legal responsibility firm, and enabling banks to offer blockchain-based providers,” added the report.

The UK, the EU and crypto

Different jurisdictions cited by the paper embody the UK, which has acknowledged its intention to grow to be a worldwide crypto hub. The UK has opted for preliminary regulation of some particular crypto belongings, primarily stablecoins, as a substitute of pursuing a bespoke regime for a broadly outlined group of crypto belongings as supplied for within the EU by means of the MiCA framework.

The report additionally referenced a research performed for the European Parliament, which anticipates a big divergence between the UK and the EU over the approaching years regarding the identification and regulation of crypto belongings.

In the meantime, Japan has launched a contemporary regulatory framework for crypto belongings that, much like the strategy taken by the UK, builds upon present laws. This framework ensures investor protections by inserting accountability on intermediaries of stablecoins to uphold their dedication to redeeming at par worth and adhering to anti-money laundering and person knowledge safety legal guidelines.

Whereas admitting that tighter regulation within the EU as in contrast with that within the non-EU international locations “could have adversarial results on the event of crypto-asset markets,” the authors additionally keep “there may be proof {that a} tighter regulatory framework has restricted however optimistic results.”

“Subsequently, the EU’s regulatory motion ought to carry advantages total, whereas third-party coverage motion remains to be wanted to enhance and strengthen monetary stability,” reads the report.