Landmark Crypto Rules Make Exchanges Liable For Customer Losses In The EU

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Today, the European Union approved a comprehensive set of cryptocurrency regulations aimed at laying the groundwork for global crypto regulation. Rules that make providers liable if they lose investors’ crypto assets will come into force in 2024 in 27 EU member states.

“I am very happy that today we are delivering on our promise to start regulating the crypto-asset sector,” Elisabeth Svantesson, Sweden’s finance minister, said in a press release. “Recent events have confirmed the urgency of imposing rules that will better protect Europeans who have invested in these assets and prevent the misuse of the crypto industry for money laundering and terrorism.”

Among recent events that have spurred the legislative push is the collapse of FTX, European Financial Services Commissioner Mairead McGuinness told CNBC late last year. FTX was one of the largest cryptocurrency exchanges in the world, and its implosion resulted in $8 billion in customer losses, the United States Commodity Futures Trading Commission estimated.

To further protect crypto-investors, EU rules ensure that crypto-assets can be traced just like money transfers and suspicious transactions can be blocked. They also offer “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 cover transactions over €1,000 from self-hosted wallets whenever they connect to wallets hosted by crypto-asset service providers. .

Other key features of sweeping regulation include requirements for crypto providers. On the one hand, they will have to disclose their energy consumption to help the EU monitor the high carbon footprint of cryptocurrencies. On the other hand, all vendors will need a license to issue, trade, and protect crypto assets, tokenized assets, and stablecoins. Anyone operating without a license will be listed in a public register of the European Securities and Markets Authority 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 enabling innovation and fostering the attractiveness of the crypto-asset sector,” today’s press release reads.

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Some crypto industry players have been pushing for regulations recently, saying greater clarity would help spur growth. McGuinness told CNBC that many crypto providers have already started adopting the rules as best practices, but not all providers agree with European lawmakers that regulations are needed.

Some of those who were involved in crypto, early on, did so because they didn’t want to be part of the regulated and managed system, McGuinness told CNBC. They want it to be distinct and parallel to this one. It is a very dangerous path.

Influencing Global Cryptocurrency Regulations

The EU has been trying to enact effective crypto rules since 2020, but today’s news doesn’t end EU efforts to control unregulated cryptocurrencies. McGuinness wrote an op-ed for The Hill last year, stressing that a comprehensive approach to cryptocurrency regulation is still needed. Today’s regulatory progress could mark the first step in the EU’s bid to join the US and “pave the way” for a “shared international approach to crypto regulation”, it said. said McGuinness.

“To make rules on cryptography fully effective, cryptography requires global coordination and common international principles,” McGuinness said. She also told CNBC that “the United States [has] huge interest in what we were doing here “with crypto asset legislation.” I think there will be developments there, McGuinness told CNBC.

In his op-ed, McGuinness outlined what a global crypto deal could look like, focusing on four important steps all stakeholders should take to align with the EU.

The main goal, she said, is to ensure that “no product remains unregulated”. Once all cryptocurrencies are regulated, countries would then have to “collect and exchange information” and agree to protect all retail investors. Finally, the global agreement should “fully integrate environmental considerations” to prevent climate damage. This would help make blockchain more sustainable as the cryptocurrency ecosystem grows to include not only crypto traded on decentralized exchanges, but also government-backed central bank digital currencies.

As the EU moves 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 set a timeline for the introduction of its phased approach to crypto asset regulation, and the US is still unsure how it wants to implement oversight, still trying to stall its crypto enforcement strategy in existing securities regulations.

If ever a global deal is struck based on the EU regulatory framework, the McGuinness editorial painted a future in which everyone around the world can ‘make payments cheaper, faster and more secure’ . This, she said, could unlock incalculable benefits and “unlock the billions of euros and dollars currently used to cover credit or settlement risk” in the existing financial system.

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