A first in the fight against crypto fraud in the EU
Being able to manage your finances without interference from any central authority. That has long been the ethos behind the existence and trading of cryptocurrencies. Whether owners of Bitcoins and Ethereum were waiting for it or not, that thought is increasingly a thing of the past in Europe.
Last Thursday (20-04-2023) the European Parliament voted to pass both the Transfer of Funds Regulation (or TFR: 529 in favour, 29 against and 14 abstentions) and the adoption of the Markets in Crypto Assets Regulation (or MiCA: 517 in favour, 38 against and 18 abstentions). The purpose of these two sets of laws is to further regulate transfers of crypto stocks and establish common rules regarding oversight in the markets.
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The new rules at a glance
The wild west era of cryptocurrencies seems to be coming to an end, at least within the European Union. For starters, companies that want to trade crypto that want to operate within Europe will have to apply for a license from one of the central banks. This concerns, for example, companies such as trading platforms. They must also keep track of transaction data. This makes transactions traceable and suspicious activity can be blocked. Incidentally, in the Netherlands DNB already imposed many of these requirements on crypto companies that wish to operate within national borders.
The new rules do not only apply to companies. Private transactions of more than € 1000 that take place via, for example, an online trading platform are also included in the new laws. The rules do not apply to private transactions that take place without mediation.
The risks of crypto
Ironically, the purpose of these laws is to protect consumers who knowingly enter a market whose lack of regulation has long been its main appeal. In so-called ‘White Papers’, crypto coin issuers must clearly describe how the technology works and what the risks are. And there are risks, not least because of the previous lack of regulation, certainly.
Consider, for example, the case of Sam Bankman-Fried and his crypto company FTX. They were a leader in the crypto world for a number of years. Billions were deposited with the company until FTX turned out to have spent a large part of those billions. Customers only found out about this when they were no longer able to withdraw currency during a price drop. And Bankman Fried? He is currently on trial on suspicion of fraud, conspiracy and money laundering.
The new normal for crypto trading
Such things should no longer be allowed to occur within the EU just like that. MiCA is mainly intended to better inform crypto users about the risks. Well-informed customers, or so the word goes, will also be a lot less susceptible to scams. TFR focuses more on the companies and must combat matters such as fraud and money laundering.
The substantial energy consumption of crypto transactions will also have to be disclosed. This with a view to reducing the environmental footprint of crypto. Supervision by financial watchdogs will have to guarantee that companies will actually comply with these rules.
An uncertain future
The world of cryptocurrency is therefore becoming more and more similar to the regular banking world in many ways. An important blow to the arm is, decentralized online trade networks are a lot more difficult to invade by the FIOD than a row of bank buildings on the Zuidas.
To provide users of crypto with insight into which companies do not comply with the rules, the European Securities and Markets Authority will set up a publicly accessible register. All crypto companies that are not registered but still trade within the EU will be included.
The vast majority of crypto prices have shown a decline over the past few days. Perhaps the effect of the new laws can already be seen in this. Because more regulation and supervision means more certainty, but also less freedom. And it is precisely this freedom that has attracted so many people to crypto in recent years. What all this will mean for crypto trading in the future, only time will tell.
