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There’s always a game of thrones happening in the EU — even when it comes to crypto.
Legislators in Brussels are divided over which financial regulator should take the lead when it comes to supervising crypto companies. And if disagreement turns into political deadlock and fails to produce clear rules, it’s the average citizens investing in crypto who’ll suffer.
The division lies between EU governments in the Council and the European Parliament. Negotiators from the two institutions will soon convene to finalize a bill that aims to regulate the EU’s markets in crypto assets, dubbed MiCA, which was proposed 18 months ago.
The Council is adamant that the title of crypto watchdog should go to the European Banking Authority (EBA). The Parliament, meanwhile, is convinced the European Securities and Markets Authority (ESMA) is best suited for the job.
The winner will police the biggest players in the marketplace and charge them for the pleasure of supervision. The sector’s new sheriff will also be able to fine misbehaving companies and oversee a neighborhood watch of national authorities to ensure no one tries to dodge MiCA’s new transparency measures and investor safeguards.
Just two months ago, EU policymakers would have seen MiCA as an essential tool to check tech giants, such as Facebook’s parent company Meta, as they seek to issue cryptocurrencies unchecked for billions of social media users — a scenario that could ultimately undermine national money. That threat diminished in January, after Facebook and its partners abandoned plans to issue their own digital currency, called Diem.
But that news did little to dampen broader interest in cryptocurrencies, whose popularity has skyrocketed over the pandemic into a trillion-dollar market. And without the necessary transparency checks and safeguards in place, these hobby investors could lose everything to market swings, false promises and scams.
“Consumers face the very real possibility of losing all their invested money if they buy these assets,” the EU’s three regulators for banks, securities and insurance said Thursday in their latest market warning. “Consumers should be particularly wary of promised fast or high returns, especially those that look too good to be true.”
Securities or payments?
The root of the disagreement between MEPs and government officials is their fundamentally different views of what a crypto asset is.
The Parliament’s version of MiCA states that the general job of policing digital assets “most resemble the supervisory tasks fulfilled by securities markets supervisors” — that is, overseeing speculative assets like stocks and bonds. That’s why ESMA should get the sheriff’s badge, MEPs say.
But EU capitals, haunted by the ghost of Diem, are convinced that tech companies want to use crypto assets more ambitiously, as an alternative to conventional cash. And because part of the EBA’s remit is to keep payments secure across the bloc, they argue, it should also supervise the biggest companies issuing crypto — while national authorities keep an eye on the general market.
Council, Parliament and Commission officials are convinced that such opposing views are bound to clash. The Council is also unlikely to budge, either. It took months for EU governments to agree on a package deal on supervision for MiCA, and on another bill that targets online data storage companies.
But trilogue talks always have an element of give-and-take. These officials are wondering whether the Parliament might give up its stance on supervision in exchange for new measures that Green and leftist MEPs crafted to crack down on the crypto market’s massive carbon footprint.
If that’s not enough, the Council could also use MEPs’ desire to introduce a new legislative regime for non-fungible tokens as a bargaining chip. The NFT market, where people trade claims to unique assets like digital art, has exploded in popularity since last year.
These types of disagreement can easily bog trilogues down. But legislators will be under political pressure to wrap MiCA up before France hands the rotating EU presidency over to the Czechs in July.
While consumer safeguards are a priority, policymakers are also concerned that Russian oligarchs could use the anonymity that some cryptocurrencies provide to circumvent Western sanctions. While most experts see these concerns as overblown, MiCA’s transparency safeguards will make it even harder for crooks to move money around undetected, especially with a dedicated watchdog around.
“Politically, we know there is a lot of pressure,” one official said. “There will be ambition to finalize it before the end of the French presidency.”
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