EU Less Likely to Have Battle Over Crypto Regulator

In the U.S., the regulatory supervision of crypto assets and crypto assets providers is far from a settled matter. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) share most of the responsibilities when it comes to authorizing the activities of crypto companies or the launch in the market of new products, whether these are considered securities or commodities.

Yet, the difficulties in determining what cryptocurrencies are deemed securities or commodities have brought significant troubles and have ended up in long legal battles, some of which are still unresolved.

Recently, Senators Cynthia Lummis and Kirsten Gillibrand announced a new bill that, if approved, it would grant the CFTC more powers to supervise crypto assets, although the SEC will still keep its authority to supervise crypto assets considered securities.

Whereas this debate is likely to continue for some time in the U.S., Europe doesn’t seem to have a similar discussion over which regulator should be in charge. During the legislative debate to approve the Markets in Crypto Asset Regulation (MiCA), which has not been approved yet, there were some topics where lawmakers didn’t agree, like environmental concerns related to bitcoin or anti-money laundering issues, but the role of the regulators was never a deal breaker.

The reason probably is because there weren’t many regulators to choose from. Unlike in the U.S., where more than one federal agency had powers to oversee crypto assets and crypto asset providers, in Europe, there was only one contender, the European Securities and Market Authority (ESMA).

While ESMA has been chosen by the European Parliament as the top cryptocurrency regulator of the region, at least in the latest draft of MiCA, it will still have to share some responsibilities with the European Banking Authority (EBA) when it comes to certain types of stablecoins.

According to the latest draft of the bill, ESMA will grant crypto licenses for organizations that would like to provide services in Europe, instead of the national regulators as it was foreseen in previous drafts. The system mirrors the one that is already in place for approving banking licenses in Europe, where the European Central Bank (ECB) is the only authority capable of granting or revoking banking licenses.

In addition to granting licenses, ESMA will also have authority to determine which crypto assets are under the scope of the law. For instance, this regulation won’t apply to crypto assets that are considered securities. MiCA will apply to stablecoins, e-money tokens and utility tokens.

But it is in this space, stablecoins and e-money tokens where the supervision will be shared between ESMA and the EBA, even the ECB could intervene to draft guidelines. While regular stablecoins will be regulated by ESMA, if the EBA considers a stablecoin to be “significant” based on specific requirements and impact on the financial stability of the markets, MiCA proposes additional requirements for the stablecoin issuers, including supervision by the EBA.

It is yet unclear how this collaboration among regulators will work or how the EBA will determine that a stablecoin is “significant.” In a recent report published by EBA in June, the regulator just advanced as a priority for 2022 to “continue preparing for the supervision and policy tasks under MiCA.”

Read more: EBA’s Report Includes Crypto, Payments and AML as 2022 Priorities

But until the new regulation is in place, and it may still take a few months until the rules become effective, cryptocurrency exchanges and custody providers will need to register with the national regulators where they want to provide services.

In an interview with PYMNTS, Ajinkya Tulpule, chief compliance officer of cryptocurrency exchange BitFlyer, said having a harmonized layer of regulation at the EU level, rather than a fragmented system in 27 member states, would be very useful for companies.

See also: Crypto Faces New Restrictive AML Rules From EU Parliament Experts Say