European Regulator Lists What is Needed for 'Responsible Crypto Sector'
More dialogue between the crypto industry and supervisors, consumer education, “rigorous compliance,” and even a “mind shift” for some crypto firms are necessary for creating a “responsible” crypto sector, said José Manuel Campa, chairperson of the European Banking Authority (EBA).
The European Banking Authority is a regulatory agency of the European Union, whose goal is to contribute to the creation of the European Single Rulebook in banking through the adoption of binding technical standards and guidelines, as their website says.
In a Financial News commentary piece on Tuesday, the EBA chairperson noted that the European Parliament and Council concluded their negotiations on the European Commission’s proposal for a regulation on markets in cryptoassets, known as MiCA.
However, Campa argued,
“Concluding negotiations on MiCA […] should be seen as the beginning, not the end, of the work to foster the emergence of responsible cryptoasset products and services in the EU.”
MiCa is expected to enter into force in 2023. Campa described it as a “ground-breaking legislation” that creates an EU regulatory framework for crypto, including stablecoins, and for cryptoasset services, including custody and exchange.
Campa noted that,
“As authorities deepen their capabilities and apply the new perimeter of regulation, an uptick in enforcement actions can be expected to stamp out unlawful or unscrupulous practices in the cryptoasset market. This action should be welcomed not only to protect consumers, but to address practices that tarnish perceptions of legitimate uses of the technologies across the financial sector.”
How to foster a responsible sector
Campa argued that, in order to create such a climate in which “responsible cryptoasset products and services can emerge at scale,” there needs to be a dialogue between industry and supervisors through initiatives that would foster:
- a common and pre-emptive understanding of opportunities and risks,
- an understanding of supervisory expectations.
The EBA chairperson added that,
“This dialogue is also important to flush out any inadvertent obstacles, or potential gaps, that may need to be addressed to facilitate responsible innovation.”
Another necessary element is consumer financial education initiatives, as consumers need to be equipped with the skills necessary for them to understand the features of crypto products and services. This is also needed in order to “create an important demand-driven force to promote higher standards.”
As for many firms that are active in the crypto sector, they will need to see major adjustments to risk management practices to meet the requirements under MiCA, Campa said, adding:
“For some firms, the adjustments will need to go beyond systems and controls, and will entail a complete shift in mindset toward a ‘compliance by design’ approach.”
Meanwhile, in the realm of the supervisors, crypto market monitoring capabilities will need to be strengthened, as well as extended. These need to cover new distribution and marketing channels and “emerging interconnections” between crypto and traditional finance (TradFi).
“Indeed, many supervisors are already accelerating investments in new data analytics and training for staff,” wrote Campa.
EBA to play its part
Meanwhile, per MiCa, a new supervision system is established under the EBA's responsibility for “the largest asset-referenced and e-money tokens [stablecoins].”
The EBA will play its part in facilitating responsible uses of cryptoasset applications in the EU, said Campa, adding that next year, the regulator will start delivering “the extensive number of technical standards and guidelines mandates” under MiCA and the Transfer of Funds Regulation (TFR).
The EBA will also continue actions to facilitate EU-wide monitoring and assessment of emerging cryptoassets and use cases, promote knowledge exchange between industry and supervisors, promote supervisory merging at the national level, and continue to work with international standard-setters.
Campa concluded that,
“I am confident that responsible and sustainable innovation in the crypto sector can provide benefits for EU citizens in the years to come, but it will also require strong, consistent regulation, and a rigorous compliance culture.”
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