European Central Bank official warns of loopholes in upcoming crypto rules

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Incoming EU regulations for crypto assets will allow some of the biggest players in the industry, including the Binance exchange, to escape tighter scrutiny and need to be overhauled, a senior finance official has warned. European Central Bank.

Elizabeth McCaul, a member of the ECB supervisory board, warned in a blog on Wednesday of the shortcomings of the regulatory framework for crypto markets and said traditional approaches to financial market oversight may not work.

McCauls’ view reflects growing concern in Europe over the ability of regions to oversee the crypto industry, which has been marred by several high-profile scandals in recent months, including the collapse of the FTX exchange. Last year.

In a challenge to Binance, the world’s largest crypto trading exchange and which claims to have no official headquarters, McCaul said these companies pose challenges for our current regulatory and oversight approaches.

No jurisdiction should allow entities to run their business without disclosing their legal status and who is responsible for the business, she said. Even companies that claim to have no head office, like Binance, need to be supervised.

His comment is a further sign of growing regulatory pressure on Binance after the U.S. Commodity Futures Trading Commission filed a lawsuit against the exchange last month, accusing it of illegally serving U.S. customers. The CFTC also cited internal communications that it said showed Binance knew the platform was facilitating potentially illegal activities.

Binance claimed that the complaint appears to contain an incomplete account of the facts, adding that it disagreed with the characterization of many of the issues alleged in the complaint.

The CFTC lawsuit came two days before the Financial Times revealed that Binance hid substantial ties to China for several years.

The EU has drawn up an extensive set of rules, known as the Crypto Asset Markets (Mica) Regulation, which is due to come into force in 2024. McCaul said she was proud that the EU was taking the first measures on a global scale to provide oversight of the crypto world.

Mica will strengthen governance, segregation of client funds and external audit requirements, she said, while warning that some areas still need to be strengthened.

For crypto-asset service providers to be considered material under Mica and therefore supervised by the European Banking Authority in cooperation with the ECB, they must have at least 15 million active users in Europe, a threshold that McCaul has said to be likely to miss Binance and FTX, before its collapse. Smaller crypto providers will be supervised by EU national authorities.

She suggested that the threshold be adjusted to take into account different types of businesses and that it be measured at the level of the group rather than at the level of the individual entity. Stricter rules and enhanced oversight should apply to crypto groups classified as material, which they do not under Mica, she added.

Crypto groups often have opaque structures that criss-cross many national borders. McCaul said regulators need to oversee them at the group level to identify conflicts of interest and opportunities for regulatory arbitrage.

Its concerns build on those already expressed by other leading European regulators. ECB Supervisory President Andrea Enria had warned that crypto platforms posed a huge consumer protection problem because they did not respect national borders. EBA president Jos Manuel Campa praised Mica, but admitted there were blind spots in the package.

Binance is also seeking to convince US regulators to greenlight a deal that would allow Binance US, the company’s US subsidiary, to buy the assets of Voyager Digital, a crypto company that went bankrupt last year. . The deal is under review by the Committee on Foreign Investments in the United States, a government agency that determines whether overseas investments pose national security risks.

Binance did not immediately respond to a request for comment.

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