EU Advocates for Enhanced Crypto Regulation After FTX Collapse
European financial regulators have released a
press announcement advocating for stricter regulations of cryptoassets to protect investors’ funds. The EU Financial Stability Board’s (FSB) announcement emphasized the need for global regulators to respond with heightened urgency. The group discussed various jurisdictions’ methods of regulating, supervising, and overseeing crypto-asset activities and markets, as well as stablecoin frameworks.
While the statement did not directly reference FTX’s recent failure, industry analysts argue that it is undoubtedly related to the exchange.
The FSB Europe Group’s declaration stated.
“Given recent events, decentralized finance, trading platforms, and so-called crypto conglomerates and exchanges integrating multiple functions require immediate regulatory scrutiny,”
Recent regulatory progress, such as the EU’s Markets in Crypto-Assets (MiCA) proposal and Japan’s legislation on stablecoins aimed at investor protection, indicates a growing demand for clarity in the industry. Simultaneously, the UK has recently finalized a consultation regarding its regulatory approach to cryptoassets and stablecoins, while in September, the U.S. unveiled its inaugural framework for regulating cryptocurrencies. The U.S. appears poised for a wave of stricter regulations, with the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) pushing for new rules.
“I believe that investors need enhanced protection in this sector,” Gensler remarked. “However, it is essential to note that this field operates largely outside of compliance.”
Recently, European Union officials have made significant strides in developing a comprehensive framework to regulate digital assets. The proposed legislation primarily focuses on stablecoins and other digital asset trading but leaves room for further regulation regarding decentralized finance (DeFi) and non-fungible tokens (NFTs) by the European Banking Authority and other financial bodies.
The legislative process arises from formal “trilogue” discussions involving the European Parliament, European Commission, and European Council, which concluded on June 30. Unusually, specific sections of the Recital were intentionally kept open for further discussions, despite receiving initial tri-institutional endorsement.
At present, the volume of cryptoassets associated with currencies outside the EU is restricted by a “stringent limit.” The aim of these regulations concerning stablecoins is to promote and protect the use of euro-pegged stablecoins, such as e-money.com, which currently supports numerous European currency-backed stablecoins, including the EEUR, the ECHF, and tokens backed by Scandinavian currencies (ENOK, EDKK, and ESEK), as opposed to the dollar-pegged coins that currently dominate the landscape.
Previously, the FSB had maintained a passive stance towards digital assets. The financial regulator indicated that although they are inherently risky, digital assets do not pose significant threats to the overall financial markets as they view them to be a niche investment class.
The FSB referenced its central bank group on stablecoins, highlighting that they present considerable risks to investors and called for new regulations to govern this sector. The board is advocating for a regulatory approach that treats similar activities with similar risks under the same regulations.
Participants concurred that the FSB’s recently released consultative reports represent a significant move towards creating a robust international framework for identifying, monitoring, and addressing financial stability risks tied to crypto-asset activities.
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