Regulators urge new EU cryptoasset rules

Their value peaked at $830bn a year ago, but fell to $210bn by October

New EU-wide rules may be needed to better protect consumers from cryptoasset risks, prevent money laundering and stop diverging national regulations from creating unfair competition, European Banking Authority (EBA) said in a report released last Wednesday. Regulators have warned investors since 2013 they could lose by investing in virtual currencies, or in initial coin offerings (ICOs) that raise money for companies in return for tokens.

Bitcoin rocketed close to $20,000 in late 2017, sweeping up investors from across the world, but it has since lost three-quarters of its value. The overall value of cryptoassets globally peaked at $830bn a year ago, but fell to $210bn by October, equivalent to less than 3% of the gold market.

According to the EBA, cryptoassets as a rule fall outside the scope of EU financial rules, making it harder to build a detailed picture. EU regulators have identified financial institutions owning cryptoassets directly, making a market in them, lending against cryptoasset collateral, and exchanging cryptoassets for cash, but have little data on these activities.

Market developments also point to the need for a further review of EU anti-money laundering legislation, the EBA said. A comprehensive cost-benefit analysis would determine what, if any, action is required to regulate “opportunities and risks” from cryptoasset activities and related technologies, EBA said.

The watchdog said a broad approach should be taken, including how high amounts of energy used to mint cryptoassets impact EU climate change and sustainable development goals. An EU analysis could assess the impact of cryptoasset activities on financial sector resilience, and the links between cryptoassets and traditional banking. “Given the pace and complexity of change, it would be desirable for a technologically neutral and future-proof approach to be adopted in developing any proposals should it be concluded that EU-level action is needed,” EBA said.

Separately, the European Securities and Markets Authority (ESMA) said some cryptoassets fall under EU securities’ trading rules, but that supervisors face challenges in applying them. “A number of crypto-assets fall outside the current financial regulatory framework. This poses substantial risks to investors who have limited or no protection when investing in those crypto-assets,” said ESMA chair Steven Maijoor. There is still no legal definition of cryptoassets, he added.

The EBA and ESMA recommendations mark a step closer to regulating the sector in Europe after attempts to find global consensus for rules have failed so far to go beyond monitoring the industry more closely. But finding consensus within the EU may not be easy.

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