‘No Point’ to EU's Crypto Rules Unless World Follows Suit, Senior EU Official Says
DAVOS, Switzerland – New European Union crypto rules are pointless unless the rest of the world follows suit, the bloc’s leading financial services official told CoinDesk.
In Switzerland to attend a gathering of the world’s economic elite, European Commissioner Mairead McGuinness said recent crypto market turmoil had given extra ammunition to those pushing for a global rulebook, but warned future crypto innovations need to be focused on people.
“It's great that we can say that” the EU is the first major jurisdiction in the world to regulate the sector with its landmark Markets in Crypto Assets regulation (MiCA), McGuinness told CoinDesk after a crypto panel at the World Economic Forum. “But there's no point in Europe being on its own, because this is a global development, and we can't put barriers on it.”
“If we fail to do that global approach, we're going to find that there's more and more problems,” said McGuinness, who is the European Commissioner for financial services. “The technology is borderless.”
Read more: European Union Postpones MiCA Vote to April
The seeds of a likely global crypto framework have already been set by the Financial Stability Board, whose chair, Klaas Knot, had just told the Davos audience he wants to finalize controversial proposals before the summer. But McGuinness was honest about the practical challenges of implementing international rules.
“I do hope there is” global crypto regulation, she said. “But you know, when it comes to climate change, we all want global things to happen, and they're not – so sometimes somebody has to start the process.”
MiCA, set to be formally approved by the European Parliament in April, sets reserve requirements for stablecoins – cryptos that seek to maintain value against fiat or other assets – and governance rules for crypto companies. The fear is that MiCA will be undermined if exchanges or wallet providers try to serve EU clients from regulatory havens – which McGuinness referred to as “sunny places for shady people.”
The travails of 2022 – which saw a set of major collapses in the sector, including Bahamas-based crypto exchange FTX, stablecoin terraUSD and lenders Voyager and Celsius – may ironically help her in her quest.
“We're now, I think, in a good place because we have seen very visible examples of how things can go wrong,” she said. “I think the world now knows that, if it happened there, it can happen anywhere, so let's talk.”
FTX’s founder and former chief executive Sam Bankman-Fried is now facing multiple charges including wire fraud and money laundering, to which he has pleaded not guilty. But McGuinness argues regulation is needed even for less egregious cases.
Some people got involved in crypto due to distrust of the establishment and excitement about technology, and “it just went to their head and got out of control, and then there are casualties from that,” she said.
“There’s still, I think, an unfinished debate about what the problem is, or is there a problem with crypto inherently,” she said. “People with the best intentions can make business mistakes, and crypto people can make big business mistakes that then impact on individuals, or further down the financial system.”
Even once MiCA takes effect around the start of 2025, it won’t be the end of the story. Crypto evolves quickly and “we will have to tweak what’s in place,” McGuinness said, but she also cautioned against rushing to regulate areas such as decentralized finance (DeFi) that aren’t yet well understood.
“We need to get our heads around all of this,” she said. “DeFi – you ask the man or woman in the street what this is and really they do not know, so we need to be very careful that we're not running ahead of ourselves.”
One option is to “have places or sandboxes where we can test things out before making it freely available, and decide based on the test whether it's going to work or whether it's not,” she said, citing an approach the EU has taken in experimenting with distributed ledger technology-based securities trading.
But it’s not just regulators that need to hold their horses: crypto providers also need to remember what they’re trying to achieve, and who they’re serving, she said.
“Sometimes you forget when you're talking about technology, this is ultimately about European citizens … they want service,” she said. “We may see pushback against this over excitement around the evolutions of finance.”
As examples of pushback, she cited lawmakers’ frustration over the closure of bank branches and ATMs, and her own personal – but relatable – frustration at waiting on hold for 45 minutes with a financial services provider.
“If I were in the financial system, I would be thinking, how do we avoid that disconnect from our customers?” she said. “This excitement around technology is super wonderful … but don't underestimate that it has to be human-centered.”