More dialogue between the crypto industry and regulators, user education, “strict compliance” and even a “mindset change” for some crypto businesses are needed to create a “responsible” crypto sector. Jose Manuel CampaPresident of the European Banking Authority (European Banking AuthorityEBA).
The European Banking Authority is a regulatory agency whose aim is to contribute to the creation of a single set of rules in the field of banking by adopting technical standards and binding guidelines, as stated on its website.
In a Financial News article on Tuesday, the EBA president noted that European Parliament and on European Council have concluded their negotiations on the European Commission’s proposed regulation on crypto-asset markets, known as MiCA.
However, Mr. Campa argued the following,
“The conclusion of the MiCA negotiations […] should be seen as the beginning, not the end, of work to promote the emergence of responsible crypto-asset products and services in the EU.”
MiCA is expected to enter into force in 2023. Campa described it as “groundbreaking legislation” that creates a European regulatory framework for cryptocurrencies, including stablecoins, and for crypto-asset services, including custody and exchange.
Campa noted that
“As authorities build capacity and enforce the new regulatory perimeter, we can expect an increase in enforcement action to root out illegal or unscrupulous practices in the cryptoasset market. This action should be commended not only for protecting consumers but also for combating practices that tarnish the perception of the legitimate use of these technologies in the financial sector.”
How to promote a responsible sector
Campa argued that creating such a climate in which “responsible crypto products and services” can emerge requires dialogue between the industry and regulators through initiatives that would encourage:
- general and preventive understanding of opportunities and risks,
- understanding the expectations of supervisors.
The EBA chairman added that
“This dialogue is also important to remove unintended barriers or potential gaps that may need to be addressed to facilitate responsible innovation.”
Consumer financial education initiatives are another critical component, as consumers must be equipped with the skills to understand the features of crypto products and services. It is also about “creating a strong, demand-driven force to promote higher standards”.
As for the many companies that are active in the crypto sector, they will need to see major adjustments to their risk management practices to meet MiCA’s requirements, Campa said:
“For some companies, fixes will need to go beyond systems and controls and involve a complete change in mindset to a compliance-by-design approach.
Meanwhile, in the field of supervision, the monitoring capabilities of the crypto market will need to be strengthened and expanded. They should cover new distribution and marketing channels and “emerging interconnections” between crypto and traditional finance (TradFi).
“Indeed, many supervisors are already accelerating investments to develop new skills in data analysis and staff training,” Campa wrote.
The EBA has its role
Meanwhile, according to MiCA, a new oversight system will be created under the EBA’s responsibility for “the largest asset-backed tokens and stablecoins.”
The EBA’s role will be to facilitate the responsible use of cryptocurrency applications in the EU, Campa said, and next year the regulator will provide “mandatory technical standards and guidelines” under MiCA and the Transfer of Funds Regulation (TFR).
The EBA will also continue its actions to facilitate the EU-wide monitoring and assessment of emerging cryptoassets and use cases, to promote the exchange of information between industry and supervisors, to promote the merger of supervisors at national level and to continue working with international standardisers.
Mr. Campa concluded that
“I am convinced that responsible and sustainable innovation in the crypto sector can bring benefits to EU citizens for years to come, but will also require strong and consistent regulation as well as a strict culture of compliance.”
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