The components necessary for a “responsible crypto sector” according to European regulators

The components necessary for a “responsible crypto sector” according to European regulators

More dialogue between the crypto industry and regulators, consumer education, “rigorous compliance” and even a “change of mindset” for some crypto businesses are needed to create a “responsible” crypto sector. said Jose Manuel CampaPresident of the European Banking Authority (European Banking AuthorityEBA).

Source: AdobeStock / Grecaud Paul

The European Banking Authority is a regulatory agency, the objective of which is to contribute to the creation of a uniform set of rules in the field of banking through the adoption of technical standards and binding guidelines, as indicated in its website.

In a Financial News article on Tuesday, the EBA President noted that the European Parliament and the European Council concluded their negotiations on the European Commission’s proposed regulation on crypto-asset markets, known as MiCA.

However, Mr. Campa argued the following,

“The conclusion of the negotiations on MiCA […] should be seen as the start, not the end, of work to foster the emergence of responsible crypto-asset products and services in the EU.”

MiCA is expected to come into force in 2023. Campa described it as “groundbreaking legislation” that creates a European regulatory framework for cryptocurrencies, including stablecoins, and for crypto-asset services, including custody and exchange.

Campa noted that,

“As authorities build capacity and enforce the new regulatory perimeter, we can expect an upsurge in enforcement actions to root out illegal or unscrupulous practices in the crypto-asset market. This action needs to be praised not only for protecting consumers, but also for combating practices that tarnish the perception of the legitimate uses of these technologies throughout the financial sector.”

How to foster a responsible sector

Campa argued that creating such a climate in which “responsible crypto products and services can emerge” requires dialogue between the industry and supervisors through initiatives that would foster:

  • a common and preventive understanding of opportunities and risks,
  • an understanding of the expectations of supervisory authorities.
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The EBA Chairman added that,

“This dialogue is also important to flush out unintended barriers, or potential gaps, that may need to be addressed to facilitate responsible innovation.”

Consumer financial education initiatives are another critical component, as consumers need to be equipped with the skills to understand the features of crypto products and services. It is also about “creating a strong demand-driven force to promote higher standards.”

As for the many companies that are active in the crypto sector, they will need to see major adjustments to their risk management practices to meet MiCA requirements, Campa said:

“For some companies, the adjustments will need to go beyond systems and controls, and will involve a complete shift in mindset to a ‘compliance by design’ approach.”

Meanwhile, in the area of ​​supervision, crypto market monitoring capabilities will need to be strengthened and expanded. These should cover new distribution and marketing channels and “emerging interconnections” between crypto and traditional finance (TradFi).

“Indeed, many supervisory authorities are already accelerating investments to develop new skills in data analytics and in staff training,” Campa writes.

The EBA has a role to play

Meanwhile, according to MiCA, a new oversight system will be established under the responsibility of the EBA for “the largest asset-referenced tokens and stablecoins.”

The EBA’s role will be to facilitate responsible uses of cryptocurrency applications in the EU, Campa said, and over the next year the regulator will provide “mandated technical standards and guidelines” in MiCA framework and the Transfer of Funds Regulation (TFR).

The EBA will also continue its actions to facilitate the EU-wide monitoring and assessment of emerging crypto-assets and use cases, to promote the exchange of information between industry and supervisors, to promote the merger of supervisors at the national level and to continue to work with international standard setters.

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Mr. Campa concluded that,

“I am convinced that responsible and sustainable innovation in the crypto sector can bring benefits to EU citizens in the years to come, but it will also require strong and consistent regulation, as well as a rigorous compliance culture. ”

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