The European Union is prepared to regulate cryptocurrencies if the sector continues to remain inherently volatile and present substantial risks to new investors. If these risks are not tackled at the global level, the EU is ready to step in according to the Union’s financial services commissioner.
Global Investment Craze
Cryptocurrencies are extremely volatile and are prone to experiencing wild swings in their price valuation. Over the last year, a global investment craze involving Bitcoin and other digital currencies swept a number of developed nations with some investors making swift fortunes whilst others suffered heavy losses.
The European Commission Vice-President, Valdis Dombrovskis recently stated:
“This is a global phenomenon and it’s important there is an international follow-up at the global level, we do not exclude the possibility to move ahead at the EU level if we see, for example, risks emerging but no clear international response emerging.”
Dombrovskis spoke to reporters after hosting a roundtable attended by the European Central Bank, industry bodies, and the Financial Stability Board, which writes and coordinates regulation for the Group of 20 Economies.
The world’s top finance ministers and central bankers also met in Buenos Aires, last week at the G20 Summit, with the subject of Cryptocurrency trading being a key aspect on the agenda. The general conclusion was that as the virtual currencies only represent a small part of the financial system, there is no real need for regulation. There is also no strong consensus among G20 nations with regards to the close regulation of the cryptocurrency sector.
In addition, a letter from the chair of the Financial Stability Board (FSB), Mark Carney, advised the G-20 against new rules regarding crypto, and further cemented the lack of consensus among global leaders regarding regulation.
The conclusions from the summit were generally seen as being positive from those within the cryptocurrency community, although a further review is scheduled to take place in July. Despite there being no agreements regarding regulations, the G20 did call for unified standards and posted the following statement:
“We commit to implement the FATF standards as they apply to crypto-assets,” the online posting continued, “look forward to the FATF review of those standards, and call on the FATF to advance global implementation. We call on international standard-setting bodies (SSBs) to continue their monitoring of crypto-assets and their risks, according to their mandates, and assess multilateral responses as needed”.
The FATF is an intergovernmental organization based in France and mainly chooses to focus on money laundering and terrorism financing. The organization is comprised of 37 member states, and can blacklist uncooperative nations as well as apply severe financial pressure without needing to approve formal sanctions.
In the lead up to the G20 meeting, the FATF issued their own report, which discusses standards for virtual currencies, and states that Virtual Currency Payment Products and Services (VCPPS) will continue to be monitored, especially “particular methods of terrorist financing activity that pose an emerging threat, as well as at products and services that may represent an emerging vulnerability”.
According to Dombrovskis, The EU will decide how to address the issue later this year or early in 2019 and Markus Ferber, a centre-right member of the European Parliament, called for a quick EU regulatory response and warned against waiting years for international rules to trickle through, stating:
“In order to make sure that retail investors do not fall prey to market manipulation and fraud, virtual currencies should be regulated as other financial instruments.”
Dombrovskis told reports that the EU does not exclude the possibility to move ahead with the plan of regulation at the EU level if a clear international response is lacking to face the emerging risks.
Despite the fear that cryptocurrencies could pose substantial risks for investors and be vulnerable to financial crime without safeguards, there is also a feeling amongst nations such as Germany and France; that new opportunities are being created from the emerging sector.
Policymakers worry that a hard crackdown on innovation in the sector will result in jobs and economic growth being lost to other regions, with the blockchain technology that underpins crypto-currencies being held in high regard.
Dombrovskis has stated that blockchain technology holds a strong promise for financial markets and has urged nations to accept it in order to remain competitive, while also ensuring that any problems that expose investors to substantial risk remained checked.
The European Commission recently unveiled the EU Blockchain Observatory and Forum to highlight key developments of blockchain technology, in addition to consolidating related activities within the EU.
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