At last week’s Converge22 conference in San Francisco, crypto regulation was top of mind for attendees and there was no shortage of relevant content across three days of programming produced by Circle, keepers of the USDC stablecoin.
In a panel titled “View from Across the Pond: Regulatory Change in the EU and UK,” participants reviewed where things stood in relation to the United States.
The panel’s premise was also a helpful reminder of how Facebook’s Libra/Diem project in 2019 inspired fearful regulators across the globe to urgently consider guardrails for the digital asset ecosystem.
As of June 2022 in the European Union, the passage of Markets in Crypto-Assets or MiCA regulation as well as the Transfer of Funds Regulation (TFR) delivered the first holistic regulatory framework for crypto for a large swath of the global population. (For a U.S. corollary, one might point to the proposed Lummis/Gillibrand “Responsible Financial Innovation Act” – a broad framework. Of course, it’s far from being signed into law.)
Patrick Hansen, who is arguably the top source of European Union regulation trends on crypto Twitter as well as an advisor to Presight Capital, joined the panel discussion along with Dr. Lisa Cameron, UK MP and Chair of the Crypto and Digital Assets.
Circle’s VP of Policy and Regulatory Strategy, UK/EU, Teana Baker-Taylor, steered the conversation.
Two regimes
On the different regulatory approaches to crypto, you are either one of two regimes according to panelists:
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- Activity-based – This is the United States’ approach – one-off laws that are developed to address the most acute or pressing issues in crypto -think, for example, about the digital assets reporting legislation announced in August which fixes the 2021 Jobs Act definition of “broker” in crypto or the coming stablecoin legislation from Rep. Patrick McHenry (R, NC) and Rep. Maxine Waters (D, CA).
- Holistic – This is the European Union’s preference as regulation looks to not only harmonize law between the many countries of the EU, but also create a broad framework on which to build.
UK MP Lisa Cameron appeared to side with the activity-based regulation regime saying, “What we want to do is have a very bespoke approach and the government has the aim of ensuring that the UK is an international hub of crypto and digital assets.”
Overall, it was apparent from MP Cameron’s comments that crypto guidelines in the UK are still in their infancy and may be end up taking cues from whatever transpires in the United States.
Meanwhile, in describing the opportunities presented by MiCA and TFR frameworks, Hansen made clear the European Union’s point-of-view stating, “I think it’s largely consensus that we need a new approach for regulating crypto assets. So I think at the end of the day, the US will follow – and will hopefully sooner rather than later – and implement a new holistic approach on how to deal with crypto assets.”
Hansen added that with the imminent finalization of MiCA, “exchanges, custodians, brokers, advisors will have a clear rulebook on what to do and how to comply. They will be able to passport their services all around Europe – that’s the main benefit.”
Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs) were left off the legislation until next year by the European Commission, according to Hansen, in order to get a better understanding of their operations before they are ultimately added to the framework -potentially next year.
Stablecoins in the EU
“Protectionist clauses” in regards to stablecoins were cited as potentially onerous for non-Euro stablecoins such as as USDC, USDT and others. Hansen suggested that this could backfire, “We really have to look closely here that MiCA won’t stifle the national stablecoin market in Europe. And there are a couple of other liability questions for service providers like exchanges that would have to basically publish white papers for assets that don’t have white papers yet. [The exchanges] might even be held liable for the information that they would publish.”
Also lingering is the stablecoin reserve requirements. Hansen added, “MiCA says stablecoin reserves have to consist of high quality liquid assets. And the question is what does that mean on a technical level – what counts as high quality and liquid? That has to be specified by the European Banking Authority (the EBA).”
Overall, Hansen remained sanguine about what resolving some of these “level two” questions with European regulators saying, “And if we get that right, I think we can become successful.”
Final thought
It is difficult to imagine Congress following the European Union’s lead given today’s bicameral bipartisan interest in creating a crypto framework – however piecemeal. And legislation which ultimately reasserts the U.S. dollar as the world’s reserve currency in a crypto-infused world will satisfy even the Hill’s biggest crypto haters.
That said, an impediment to a successful regulatory regime in the U.S. would appear to be a Congress that moves slower than the rest of the world.
Is it holistic vs. activity-based?
Is it EU vs. US?
Or, is it US vs. itself?