Premium crypto rules make exchanges liable for EU customer losses – Ars Technica

Today, the European Union approved a comprehensive set of cryptocurrency regulations that seek to lay the groundwork for how cryptocurrencies will be regulated globally. The rules – which make providers liable if they lose investors’ crypto assets – will come into effect in 2024 across the 27 EU member states.

“I am very happy that today we fulfill our promise to start regulating the crypto-asset sector,” Elisabeth Svantesson, Sweden’s Finance Minister, said in a press release. “Recent events have underscored the urgent need to impose rules that will better protect Europeans who have invested in these assets and prevent misuse of the cryptocurrency industry for money laundering and terrorist financing purposes.”

Among the recent events that spurred the legislative push was the collapse of FTX, Mered McGuinness, European Commissioner for Financial Services, told CNBC late last year. FTX was one of the largest cryptocurrency exchanges in the world, and its implosion resulted in customer losses of $8 billion, according to estimates from the US CFTC.

To better protect cryptocurrency investors, EU rules ensure that crypto assets can be traced — just like money transfers — and suspicious transactions can be blocked. EU lawmakers also declared that they provide “enhanced consumer protection and safeguards against market manipulation and financial crime”. The rules do not apply to person-to-person transfers but cover transactions over €1,000 from self-hosted wallets anytime they connect to wallets hosted by crypto-asset service providers.

Other key features of the comprehensive regulations include requirements for crypto providers. First, they will have to disclose their energy consumption to help the EU monitor the high carbon footprint of cryptocurrencies. On the other hand, all service providers will need a license to issue, trade, and protect crypto assets, tokenized assets, and stablecoins. Anyone operating without a license will be included in the European Securities and Markets Authority’s public register to document their non-compliance and help prevent money laundering, terrorist financing and other criminal risks.

“This regulatory framework aims to protect investors, maintain financial stability, while allowing innovation and enhancing the attractiveness of the crypto-asset sector,” reads a press release today.

Some in the cryptocurrency industry have recently pushed for regulations, claiming that more clarity will help spur growth. Many crypto providers have already begun to adopt the rules as best practices, McGuinness told CNBC, but not all providers agree with EU lawmakers that the regulations are necessary.

“Some of those who got involved in cryptocurrency, from the very beginning, were doing it because they didn’t want to be part of the regulated and managed system,” McGuinness told CNBC. They want to be separate from it and parallel to it. This is a very dangerous path.”

Influencing global cryptocurrency regulations

The European Union has been trying to pass effective cryptocurrency rules since 2020, but today’s news does not end the European Union’s efforts to impose restrictions on unregulated cryptocurrencies. McGuinness wrote an op-ed for The Hill last year, urging that a global approach to cryptocurrency regulation is still needed. Today’s regulatory advances, McGuinness said, could mark the first step in the European Union’s bid to join the United States and “lead the way” to a “common international approach to regulating cryptocurrencies.”

“To make the rules for cryptocurrency fully effective, cryptography requires global coordination and shared international principles,” said McGuinness. She also told CNBC that “U.S [has] Great interest in what we’ve been doing here “with crypto asset legislation.” I think there will be developments, McGuinness told CNBC.

In her editorial, McGuinness outlined what a global agreement on cryptography could look like, highlighting four important steps all stakeholders must take to align with the EU.

The primary goal, she said, is to ensure that “no product remains unregulated”. Once all cryptocurrencies are regulated, countries must then “collect and exchange information” and agree to protect all retail investors. Finally, the global agreement must “fully integrate environmental considerations” to prevent climate damage. This will help make the blockchain more sustainable as the cryptocurrency ecosystem grows to include not only cryptocurrencies traded on decentralized exchanges but also government-backed central bank digital currencies.

As the European Union presses ahead with historical cryptographic rules, Reuters reports that the US and Britain are now in a position of catching up. Britain has yet to set a timeline for introducing its phased approach to regulating crypto assets, and the US is still unclear on how it wants to implement oversight — still mostly trying to fit its crypto enforcement strategy into existing securities regulations.

If a global agreement is ever reached based on the EU’s regulatory framework, McGuinness’ editorial charted a future in which everyone around the world can “make payments cheaper, faster and safer”. She said this could unlock untold benefits and “unleash the billions of euros and dollars currently used to cover credit or settlement risks” in the current financial system.

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