This week in TechREG, regulators in Europe and the United Kingdom continue exploring new rules in the cryptocurrency space.
The U.K. wants to the give the Bank of England (BoE) new powers to supervise stablecoins of significant importance, and it is planning to amend insolvency rules that would allow the BoE to order return of funds to users in case of collapse.
European Union regulators are devoting more efforts to combat anti-money laundering (AML), and different supervisors are proposing amendments to existing rules to revoke licenses from companies in case of serious AML breaches. The EU parliament may also pass stricter AML rules for crypto exchanges.
Designing a Crypto Legal Framework
The U.K. government announced a few months ago that it wanted to lure the crypto community with a regulatory-friendly environment, and the government took a step in this direction Tuesday (May 31). The U.K. Treasury launched a consultation proposing an insolvency regime for digital assets, and in particular for systemic stablecoins. The proposed regime would position the BoE, instead of the Financial Conduct Authority (FCA), as the lead institution managing the collapse of a stablecoin that has systemic importance to the financial system.
The EU Parliament may soon decide whether to approve a proposal to expand a “travel rule” for crypto firms that would include virtually every transaction. The EU Parliament has proposed to remove a 1,000-euro threshold below which crypto exchanges wouldn’t be obliged to collect and provide this information. This would mean that, if approved, crypto exchanges would have to report every crypto transaction regardless of the amount. Ajinkya Tulpule, chief compliance officer at crypto exchange bitFlyer, told PYMNTS in an interview that this measure seems excessive, but it is nonetheless likely to be approved.
The Bank for International Settlements (BIS), the so-called central banks’ bank, published a report in May assessing how embedded supervision could help to regulate and supervise decentralized finance (DeFi) markets. The BIS’s report makes the case for embedded supervision, namely, a regulatory framework that provides for compliance in decentralized markets to be automatically monitored by reading the market’s ledger. This reduces the need for firms to actively collect, verify and deliver data. In a decentralized market, today’s intermediary-based verification of legal data would be replaced with a blockchain-enabled credibility based on economic consensus.
EU Regulators to Get More Powers
The European Supervisory Authorities (ESAs) published a joint report Wednesday (June 1) advocating for the introduction in all relevant EU sectoral laws of a specific legal ground to revoke licenses for breaches of AML/combating the financing of terrorism (CFT) rules. The report acknowledged that the competent authorities may rely on grounds under EU or national law provisions to withdraw the authorization for serious breaches of AML/CFT rules. However, it is often the case that the legal provisions don’t provide a clear authority to withdraw the authorization based on AML breaches alone, and cases need to be built using other legal basis, the ESAs argued. Therefore, the ESAs proposed that sectoral laws be amended to insert an express legal ground specifically empowering them to withdraw the authorization or the registration as the case may be, solely for serious breaches of AML/CFT rules.
The European Commission launched in May a public consultation to gather information for its review of the second EU Payment Services Directive (PSD2). The commission started by questioning the scope of the PSD2 and suggested changes in the definition of payment providers and other services in view of the payment methods available in the market that were not present five years ago. The commission mentioned in the report new methods of payments, including wallets, account-to-account, smartwatch and even stablecoins. Most significantly, the regulator asked directly if payment transactions using crypto assets (including stablecoins) and buy now, pay later (BNPL) schemes, among others, should be included in the PSD2 list of services, and if so, what other changes would be necessary in relation to the supervisory provisions.
Google, Meta, TikTok and other companies in the online advertising industry may face a new regulatory landscape in the U.K. as a result of new legislation, the creation of a new regulator and even enforcement actions. The government will close a public consultation on its Online Advertising Program June 8, which may result in stricter online advertising rules. While the government didn’t say explicitly which policy option it would choose, there are references suggesting that the government may prefer to have a new regulator with strong enforcement powers.
EU Lawmakers Inform Parliament on Silicon Valley Visit
A group of EU lawmakers who visited Silicon Valley last week met with representatives from Google, Meta, Apple, Airbnb, eBay, Paypal, Uber, Salesforce, the nonprofit Electronic Frontier Foundation, Cloudfare, AT&T, Stanford University’s Center for Internet and Society, game developers, HP Inc and Argo AI. Some of these companies will be most affected by the Digital Markets Act (DMA)-Digital Services Act (DSA) package. Their feedback was mostly positive, according to the policymakers, although they said, “we will have to see how compliant or litigious they will be once the DMA and DSA enter into force.” They also met indirect beneficiaries of the legislation such as small- to medium-sized businesses (SMBs), which will be able to compete on equal terms in some of the markets that the DMA will open up.