A gap has arisen in the crypto regulation in the EU and in the United Kingdom

Matthew Elderfield is a former deputy chairman of the European banking supervisory authority

The form of cryptor regulation in the EU and in the United Kingdom is now clearer than before. In Europe, we have an agreement on the regulation of the markets for crypto systems (Mica), the law on financial services and markets is read out by the British parliament, and new rules of the British Financial Conduct Authority for risky investments are available. What does this mean for the scope of regulation, investor protection, supervision and enforcement?

The United Kingdom will begin with the regulation of some less specific crypto assets and service providers, while the EU is striving for pretty much everything. Mica has a broad definition of a "crypto asset", but the United Kingdom immerses his toe into the water with a closer "digital settlement asset". This essentially includes stable coins that are used as a means of payment, but (for the time being) no crypto-assets as investments. In this election, it seems to be easier to make innovations easier-and FCA warning, as the outgoing chairman explains. The broader investment focus of the EU means that issuers of new crypto-assets (with important exceptions such as purely caught coins) have to publish a brochure-like white book and are liable for it that explains their plans.

The differences in the regulation also extend to the service providers. Great Britain will probably focus on fewer services such as change and custody. The more comprehensive definition of mica includes trade, advice, transmission of orders and more as well as custody and crypto-to-crypto and crypto-to-fiat exchange.

The next planned step in Great Britain is the legislation for risk blocks in crypto investments. Investors must have a clear understanding of the protection they receive (or not preserved). The British consumers have learned on the hard tour (in the London Capital & Finance Minibond scandal) that the scope of the regulation can be confusing. The new rules of the FCA now contain an admirable, blunt and prescriptive risk production: "This is a risky investment, and it is unlikely that they are protected when something goes wrong". Hopefully this will be expanded to cryptoinvestment-and adapted by the EU regulatory authorities.

Since crypto-assets are not protected by deposit protection or other compensation systems, the effectiveness of the supervision is of crucial importance. Mica and the United Kingdom will make service providers liable for custody losses, such as: B. Cyber ​​attacks on digital wallets. But monitoring the separation of customer assets is difficult enough in the non-crypto world. And thinly capitalized service providers may not have enough bags to compensate for losses. Supervisors must be sharp.

The French authorité of the Marché Financier recently raised a few eyebrows when she announced that she would oversee Binance, the world's largest crypto exchange, to French law before Mica. Binance was scolded by a series of supervisory authorities, including in July, when the Dutchman with a fine of 3 million. The AMF obviously thinks differently.

The FCA concern was the lack of willingness of Binance to pass on information about its complex corporate structure. An opaque structure was the core of the BCCI banking scandal at the end of the 1980s-the Post BCCI guideline requires that bank structures are sufficiently transparent so that they can be effectively monitored.

The United Kingdom makes sense this principle in its supervisory conditions. Mica needs detailed rules to request this, and the AMF has to make Binance revise its corporate structure. National supervisory authorities such as AMF will continue to supervise service providers under Mica, but the European securities and market supervisory authority will be able to intervene in “important” providers, and the European banking supervisory authority will have direct supervisory powers for stable coin emitters for the first time.

The EBA chairman is concerned about his ability to find the right staff because the authority extends its area of ​​responsibility to create regulations and stress tests. Rightly rightly: EBA and Esma begging clammy national authorities and the European Commission for money, and the latter checks their personnel planning. The EBA and Esma need more flexibility to ensure that they are not exceeded by the crypto companies.

What about the enforcement? The US stock exchange supervisory authority Securities and Exchange Commission has taken decisive measures against crypto fraud and insider trade and argues that many crypto-assets are effective securities that are subject to existing rules. The FCA came to the same conclusion in the 2019 guidelines, but there were no enforcement measures yet. Mica will grant the EBA and the national authorities of the fine, but in the meantime, high fines in the EU were rare.

Consumers are still ripped off until both the British and the EU authorities begin to include some assertiveness in their existing powers-and not just waiting for new ones.