New regulations for cryptocurrencies are in the making in the EU. Lawmakers are considering creating a new regulatory body after the parliament has published a paper pointing out some legislative “blind spots” concerning the supervision of crypto assets in the European Union.
It’s a bit of a throwback to December 2019 when The Fifth Anti-Money Laundering Directive (5AMLD) – an updated legislation version, was announced. The updated directive asserted that from January 2020, EU-based Cryptocurrency companies and services would have to deal with a new set of rules regarding KYC and AML.
The new report identifies crypto mining as a possible and dangerous way for criminal organizations to carry out money laundering processes. The document, being almost 80 pages long, describes newly mined coins as “clean” by definition, but also includes the potential risk of regulators missing some “blind spots” in the big picture.
“Newly mined coins are by definition ‘clean’, so if someone (e.g., a bank) is willing to convert them into fiat currency or other crypto-assets, the resulting funds are also clean. A first regulatory step could be to try to map the use of this technique and subsequently, if it effectively proves an important blind spot, to consider appropriate countermeasures. “
The paper also suggests including tokens in the legal description of cryptocurrencies, which would also help crack down on illicit fundraising activities.
As a solution to these challenges, EU lawmakers suggest the creation of a new regional Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulator. The new “guardian” should be on alert for any potential risks posed by crypto-assets and act timely if such is detected.
Another interesting point brought up by the report was that of stablecoins. Per the document, they are capable of creating a potential risk to financial stability and monetary policy.
“As regards to financial stability, various risks can be identified. When a global stablecoin is backed by safe assets, purchases of such assets could cause a shortage of high-quality liquid assets in certain markets, leading to instability. When a global stablecoin is perceived to be a better store of value than a local fiat currency, citizens could collectively run to such a coin in times of financial turmoil, leading to domestic financial instability.” – Reads the report.
In other words, if stablecoins become so mainstream that the general public starts using them daily for all payments, control of monetary policy could jump from central banks to private companies. One might say, “so what?”. The EU lawmakers are certain that such private firms are more likely to lack the experience with monetary policy. Most importantly, they don’t have a general obligation toward citizens to act in their best interests, thus posing a risk.