Today, the European Union approved a comprehensive set of cryptocurrency regulations seeking to lay the groundwork for how crypto is regulated globally. The rules—which make providers liable if they lose investors’ crypto assets—will go into effect in 2024 across 27 EU member states.
“I am very pleased that today we are delivering on our promise to start regulating the crypto-assets sector,” Elisabeth Svantesson, Sweden’s minister of finance, said in a press release. “Recent events have confirmed the urgent need for imposing rules which will better protect Europeans who have invested in these assets and prevent the misuse of crypto industry for the purposes of money laundering and financing of terrorism.”
Among recent events spurring the legislative push was the collapse of FTX, Mairead McGuinness, the European commissioner for financial services, told CNBC late last year. FTX was one of the world’s largest cryptocurrency exchanges, and its implosion led to $8 billion in customer losses, the United States Commodity Futures Trading Commission estimated.
To better protect crypto investors, the EU’s rules ensure that crypto assets can be traced—just like money transfers—and suspicious transactions can be blocked. They also provide “enhanced consumer protection and safeguards against market manipulation and financial crime,” EU lawmakers announced. The rules do not apply to person-to-person transfers but do cover transactions above 1,000 euros from self-hosted wallets any time they connect to wallets hosted by crypto-assets service providers.
Other key features of the sweeping regulations include requirements for crypto providers. For one, they will have to disclose their energy consumption to help the EU monitor the high carbon footprint of cryptocurrencies. For another, all providers will need a license to issue, trade, and safeguard crypto assets, tokenized assets, and stablecoins. Anyone operating without a license will be included in a European Securities and Markets Authority public registry to document their non-compliance and help prevent money laundering, terrorist financing, and other criminal risks.
“This regulatory framework aims to protect investors, preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector,” today’s press release said.
Some in the crypto industry have recently pushed for regulations, claiming that more clarity will help spur growth. McGuinness told CNBC that many crypto providers had already begun adopting the rules as best practices, but not all providers agreed with EU lawmakers that regulations were necessary.
“Some of those who were involved in crypto, from the very outset, were doing it because they didn’t want to be part of the regulated, managed system,” McGuinness told CNBC. “They want it to be separate from and in parallel to it. That’s a very dangerous path.”
Influencing global cryptocurrency regulations
The EU has been trying to pass effective crypto rules since 2020, but today’s news does not end the EU’s push to get unregulated cryptocurrencies in check. McGuinness wrote an op-ed for The Hill last year, urging that a global approach to regulating cryptocurrency is still needed. Today’s regulatory progress could mark the first step in the EU’s bid to join with the US and “lead the way” to a “shared international approach to regulating crypto,” McGuinness said.
“To make rules on crypto fully effective, crypto requires global coordination and joint international principles,” McGuinness said. She also told CNBC that “the US [has] huge interest in what we were doing here” with crypto assets legislation. “I believe there will be developments there,” McGuinness told CNBC.
In her op-ed, McGuinness outlined what a global agreement on crypto could look like, focusing on four important steps all stakeholders should take to align with the EU.
The primary goal, she said, is to ensure that “no product remains unregulated.” Once all cryptocurrencies are regulated, countries should then “collect and exchange information” and agree to protect all retail investors. Finally, the global agreement should “fully integrate environmental considerations” to prevent climate harms. This would help make the blockchain more sustainable as the cryptocurrency ecosystem grows to include not only crypto traded in decentralized exchanges but also government-backed central bank digital currencies.
While the EU plows forward with landmark crypto rules, Reuters reported that the US and Britain are now in a position where they are trying to catch up. Britain has yet to establish a timeline for introducing its phased approach to regulating crypto assets, and the US is still unclear on how it wants to implement oversight—mostly still trying to wedge its crypto enforcement strategy into existing securities regulations.
If a global agreement is someday reached based on the EU’s regulatory framework, McGuinness’s op-ed painted a future in which everyone around the world can “make payments cheaper, faster, and safer.” This, she said, could unleash untold benefits and “unlock the billions of euros and dollars currently used to cover credit or settlement risk” in the existing financial system.
