ECB Says Irregular EU Crypto Regulations Increase Risks

The European Central Bank (ECB) is concerned about the different crypto regulations in the EU member states, and will urge them to harmonize the different rules until the Regulation of Markets in Cryptoassets (MiCA) becomes law and is implemented by complete.

On Thursday, June 30, EU policymakers celebrated the agreement reached between the different institutions on the scope of the new crypto regulation that will govern this space in Europe in the coming years, MiCA. However, this new legislation will only be fully implemented 18 months after the text is published in the official journal of the European Union. This delay in the implementation of the law will create a gap in the legal framework of around two years. During this time, European countries will need to enforce their national laws, if they have any, or continue to leave the sector unregulated despite the fact that banks and FinTechs cry out for clarity.

The ECB is ready to warn eurozone countries about the dangers of national regulators getting ahead of MiCA and proposing new rules that may affect future harmonization of rules. The central bank is likely to raise the need for “harmonisation” at a meeting of its supervisory board on Tuesday, July 5, according to the Financial Times.

“It’s very challenging,” said a national regulator in one eurozone country. “With MiCA 18 months away, is it better to say, ‘until I’m in, do what you want, there’s no regulation,’ or is it better to try to control it?”

MiCA, in addition to establishing common rules for all EU countries, will also change the registration and authorization process for crypto asset providers in Europe. The power to register and license companies will shift from national authorities, as now, to EU authorities. As EU MP Enrnest Ustasun said after reaching an agreement on MiCA, there is a “new crypto-sheriff” in town, the European Securities Markets Authority (ESMA), with “powers to prohibit or restrict the provision of crypto-asset services by crypto-asset service providers (CASPs) or the distribution or sale of crypto-assets, in the event of a threat to investor protection, market integrity or stability financial”.

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But before the adoption of MiCA, some EU countries passed laws regulating different aspects of the crypto space. For example, Germany has been one of the most proactive countries in regulating digital assets. It used the 2022 EU anti-money laundering directive to require companies that own or facilitate trading in crypto assets to apply for special licenses under German banking law. German regulator BaFin said its regime was “broadly equivalent” with MiCA and has so far only granted four licenses to FinTechs, and none to traditional banks.

The Netherlands and Spain have also been active, focusing their efforts on registration for AML compliance. On the other hand, France has recently come under fire for being too lax in enforcing its rules and allowing Binance to obtain a license to operate in the country.

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The ECB is concerned that countries will begin to grant cryptocurrency-related licenses to traditional banks when a pan-European framework does not yet exist. The central bank wants to discuss the need to harmonize the provision of these licenses across countries before MiCA is fully implemented.

Andrea Enria, chair of the ECB’s banking supervisory council, told MEPs last week that the ECB was seeing “differences in national regimes around cryptocurrencies” and that a level playing field “would be important”. He said he would be “focusing on internal principles to ensure you have a smooth clearance.” [and] licensing process for banks involved in these areas.

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While the ECB is not part of the MiCA negotiations, member states are, and can still propose amendments to the text or introduce new provisions to address the 18-month implementation gap.

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