The crypto regulations proposed by the EU are incorrect

The author is the managing director of the Center for European Policy Studies in Brussels

While the crypto world is passing through a further attack of turbulence, it is clear that a stronger regulatory supervision of digital assets is required.

The EU will shortly introduce a specific regulatory framework for cryptocurrencies and markets. The step comes because digital assets crash and a crisis has devoured some of the world's largest “stable coins”.

cryptocurrencies have become popular, although they are only very limited or not monitored at all. Regardless of whether it is ponzi systems, money laundering or stable coins that are bound to real assets, it is difficult for ordinary investors or users to know what is. Where you are based, how you are organized and who is behind you is often a mystery. This is a reason for concern.

But there are reasons why EU proposals are not the right means. According to the planned regulations, investors can only be offered in the block. But crypto -assets and exchanges will have a very light supervisory system, much less than what applies to financial instruments and other stock exchanges. This raises the question of why a separate regulation is required.

The industry is divided into three different forms in the proposed EU law on markets for crypto-assets: not fungal tokens (NFTS) or virtual devices; Stable coins, the value of which is said to be linked to a real asset; And digital currencies that always represent a fixed exchange rate for a tough currency.

digital currencies can only be issued by banks or fintech companies that already have a license for this, while issuers of stable coins have to have a minimum of reserves.

The EU is the first international organization to propose a specific regulatory framework. Some member states already have special laws for tokens and crypto, but there is no agreement at the multinational level. Outside the block, countries such as the United Kingdom and the USA as well as areas such as Hong Kong hesitate to introduce special rules and apply existing securities laws.

This has led to an unclear framework for a digital product that has become an international phenomenon. Consumers currently have little idea of ​​their rights on protection or legal remedies, especially if the transactions take place outside the EU.

Non-EU cryptocurrencies such as Bitcoin and Ethereum have to register under one of these forms in order to gain access to the EU market. A system of mutual recognition is unlikely because the regulations vary internationally too much. The main load of the risks will bear the consumer who will not see any difference between EU and international cryptos, but is nevertheless besieged on social media with advertising for unregulated cryptos or even with smooth fraud.

The EU's mica proposal throws up many more problems. The supervision is very limited and divided between national or European regulatory authorities. Under the proposed rules, it is much easier to start a crypto exchange than a traditional stock exchange that is subject to the European financial market regenaries known as MiFID.

The provisions against market manipulation and insider trade are very low, hardly comparable to applicable EU law. And there are no accounting standards and control rules for crypto companies. On the other hand, some EU countries also apply existing consumer protection or market regulation to crypto advertising. How this interaction will work in practice remains a big question.

The EU would have been better to consider crypto in the context of existing laws instead of creating a new regulatory framework. This means the application of MiFID to cryptoassets taking these financial instruments into account. Electronic money or bank rules could be used for digital money. NFTS do not require separate regulations, but can fall under existing consumer or copyright laws.

market and business behavior rules should apply regardless of the packaging. Start-ups in the crypto area will say that this will make the market unattractive, but why should they be subject to easier supervision for their financial transactions?

An international framework is required to regulate crypto with a common approach. Different regulatory approaches enable regulatory arbitrage and a race down, in which providers are the winners and investors. And an unregulated crypto sphere only promotes misunderstandings and potential abuse of a fundamental interesting innovation.

It is even more important to inform consumers appropriately about the dangers of an investment in crypto and the need to distinguish between fraudulent and well -intentioned systems.