ECB Says Patchy EU Crypto Regulations Raise Risks

On Thursday, June 30, EU policymakers celebrated the agreement reached among the different institutions on the scope of the new crypto regulation that will govern this space in Europe for the years to come, 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 generate a gap in the legal framework of around two years. During this time, European countries will need to apply their national laws, if they have any, or continue leaving the sector unregulated even though banks and FinTechs are clamoring for clarity. 

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The ECB is set to warn countries in the eurozone of the dangers of national regulators getting ahead of MiCA and proposing new rules that may affect the future harmonization of rules. The central bank is likely to raise the need for “harmonization” 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, are you better to say, ‘until it’s in, do what you like, there’s no regulation’ or are you better to try to get a handle on it?” 

MiCA, besides establishing common rules for all the EU countries, will also change the registration and authorization process for crypto assets providers in Europe. The power to register and authorize companies will shift from national authorities, as it is now, to EU authorities. As the EU parliamentarian 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-assets services by crypto assets service providers (CASPs) or distribution or sale of crypto assets, in case of a threat to investor protection, market integrity or financial stability.” 

But before the adoption of MiCA, some EU countries passed legislation regulating different aspects of crypto space. For instance, Germany has been one of the most proactive countries to regulate digital assets. It used the EU’s 2022 anti-money laundering directive to require companies that hold or facilitate trading of crypto assets to apply for special licenses under German banking law. The German regulator, BaFin, said that its regime was “broadly equivalent” with MiCA and it has only granted four licenses so far 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 been recently criticized for being very lax in the application of its rules and allowing Binance to obtain a license to operate in the country.