Crypto regulations are likely to follow European models like American ones

The US’s faltering in creating clear rules for cryptocurrencies puts European countries in the driver’s seat for determining worldwide regulations, as the world’s largest economies prepare to receive recommendations on how to proceed.

The Financial Stability Board (FSB) is set to launch new plans on Wednesday or Thursday on global crypto regulation that could affect how the group of 20 countries tackles decentralized finance by revamping old guidelines or creating an entirely new system. While it has firm models from Europe, the U.S. Treasury Department’s goal of leading the development of digital asset development may be frustrated by Congress’s inability to pass laws that clearly define rules for the domestic crypto market.

The FSB has been working on recommendations since July for how the G-20 countries – 19 major industrial and developing countries plus the EU – should regulate crypto. The proposals, which were presented to the finance officials and central bankers in the group, were meant to include rules for digital currencies, stablecoins and companies providing services to the new financial sector.

While some of the G-20 countries already have firm rules in place, the US has failed to enact crypto laws, leaving it up to regulatory agencies to interpret what is allowed under current legislation.

“You have forward-looking jurisdictions like Europe and Switzerland, for example, that are very clear on different types of cryptoassets,” says Gilbert Verdian, CEO of QuantQNT
, a blockchain-based financial technology company in London. “And they’ve been clear since 2017. And now more recently, with the EU, you have MiCA, where it really defines what a crypto-asset means and what a crypto-asset service provider has to do to access the market and to service and sell to consumers and to businesses. I think what that means for the United States is playing catch-up.”

MiCA – the Regulation of Markets in Crypto-Assets – was approved by the European Council on 5 October. The provisions, which take effect in 2024, were generally protective of investors at the expense of privacy and decentralization.

The EU situation contrasts with that in the US, where two bills that would codify crypto regulation appear to be stuck in Congress, and rules are being made by the Commodities Futures Trading Commission and the Securities and Exchange Commission, which are competing with each other for control. .

“There’s a lack of regulatory guidelines, there’s a lack of government adoption,” says Jeremy Sheridan, vice president of regulatory affairs at crypto depository PrimeTrust in Las Vegas. “And I think that’s going to be very, very limiting for the United States, not only from an economic standpoint, but even from an innovation standpoint, from a development standpoint, from an education standpoint, I think everything is going to continue to move internationally if we do not adopt regulatory frameworks in the same way in this country.”

The situation frustrates US ambitions to be a leader in crypto regulation. Treasury said in July that it plans to “reinforce U.S. leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.”

The new European rules for stablecoins are particularly strict, and their inclusion in the FSB proposals would be negative, according to Sheridan. “I think stablecoins need to maintain their decentralized and true nature,” he says, adding that he’s worried the FSB will propose “too much control” that would prevent “free market forces” from coming “into play for stablecoins.”

On Tuesday, EU Finance Commissioner Mairead McGuinness met Patrick McHenry, a Republican representative from North Carolina, and New York’s junior senator, Democrat Kirsten Gillibrand, to urge them to pursue US crypto legislation in light of the MiCA passage.

Meanwhile, Japan has revised its laws regarding crypto in the Foreign Exchange Act and the Prevention of Transfer of Criminal Proceeds Act. The changes were made in an effort to stop criminals from using crypto exchanges to launder money. The change will require exchanges to disclose customers’ names and addresses when making transfers and enforce penalties for failure to do so.

“We’re in the middle of the transformation of money,” Verdian says, “and this only happens every 30 to 40 years where the financial system has the opportunity to evolve for something fit for purpose over the next 30 to 40 years. Having intelligence embedded in digital assets, in traditional assets, like securities, and also money, is truly transformative.”