The European Union has warned all member states that if the financial crime risks linked to cryptocurrencies are not properly addressed they will initiate crypto regulation across the sector.
Crypto Related Financial Crime Raises Concerns Across EU
Valdis Dombrovskis, the current European Commission Vice-President for the Euro and Social Dialogue also in charge of Financial Stability, Financial Services and Capital Markets Union could not have been clearer to journalists on the matter.
While hosting a forum on the matter earlier this year that was attended by the European Central Bank, industry bodies and the Financial Stability Board, Dombrovskis remarked: “We do not exclude the possibility to move ahead by regulating crypto-currencies at the EU level if we see, for example, risks emerging but no clear international response emerging.”
The European Union (EU) is now searching for new ways to regulate cryptocurrencies. Some EU legislators, such as the UK, have been working hard in order to impose tighter controls on Bitcoin and the cryptocurrency market.
The UK’s financial regulator will unveil its guidelines on cryptocurrency policy later this year, which could have global repercussions for how virtual currencies like bitcoin are regulated. “Cryptocurrencies has been an area of increasing interest for markets and regulators globally,” according to the FCA’s 2018 business plan.
The FCA does not have any regulatory scope over cryptocurrencies, however its report could have an outsized impact on future regulation. The body has previously issued consumer warnings on the risks involved with initial coin offerings (ICOs) – the process of crowdfunding new cryptocurrencies.
Such risks were highlighted recently after the Securities and Exchange Commission (SEC) in the US charged two men over a potentially fraudulent ICO that had been publicized by the boxer Floyd Mayweather.
The Need For Broader Crypto Regulation
The cryptocurrency financial crime risks arose following multiple terrorist attacks that impacted the European Union over the last few years, and the frequency of attacks have been on the rise.
A number of additional measures were imposed on member states to control the flow of ‘dirty money’ that fund these attacks and thus at least reduce the number of attacks to no avail.
Regulators believe that prepaid cards funded with Bitcoin could have been used by terrorists in order to finance such attacks. The EU is also attempting to aggressively fight the war against tax evasion and tax havens.
Some argue that a method of avoiding governmental controls is through bitcoin and cryptocurrencies which are readily able to circumvent capital controls and other sovereign financial barriers.
In the midst of the heated debate currently taking place within the EU relating to how to regulate the cryptocurrency sector so as to control the financial crime risks, Andrea Enria, the Chairman of the European Banking Authority (EBA), has contributed to the debate.
In fact, he has spoken out against any excessive regulation of the cryptocurrency sector, the risk being, as is the consequence of any sector that is excessively regulated, that it might constrain financial innovation. Further to the point, he ultimately recommended regulators take a measured approach.
Whilst the EU has not announced finalized crypto regulations, we expect an announcement on this issue likely to be in the spring. The implications of such a decision could have notable ramifications for the entire movement towards heightened crypto regulation.
Proper Crypto Regulation Hangs In The Balance
If the EU takes a heavy-handed approach towards regulating the sector, as is commonplace in other industries, it could drive a major source of fintech and financial innovation away from its shores towards friendlier jurisdictions like Singapore and the US.
Furthermore, the decentralized attributes of many cryptocurrencies mean that a forceful approach could be met with efforts towards finding avenues towards circumvention, bringing the problem full circle.
Even though the EU has bought itself time to build a measured approach, the final regulatory outcome will depend entirely on the EU’s eagerness to balance its support for technological advances while clamping down on associated crypto crime. Much remains mired in ambiguity as blockchain-based entities must navigate the troublesome aspects of GDPR that complicate data collection practices.
With no crypto regulation efforts to-date producing 100% effective measures for stamping out fraud and nefarious activities, an even-handed approach might see the industry itself take a more active supervisory role to combat scams and deception for the benefit of all participants.
Questions about EU crypto regulation efforts and how to mitigate the risks for your blockchain-based business? Contact us at [email protected] to learn more about impending EU crypto regulations and how they might impact your cryptocurrency enterprise.