The European Parliamentary Research Service (EPRS) has released a report emphasizing the necessity for increased oversight by non-European Union (EU) regulators to ensure greater stability and development in the global crypto asset market.
Crypto Concerns: EU Commissioner’s Worries
As the EU’s Markets in Crypto-Assets Regulation (MiCA) Act progresses toward implementation by December 2024, the EPRS report underscores the need for a more robust regulatory framework in non-EU jurisdictions.
In June 2023, the EU introduced the MiCA, a comprehensive regulatory framework for digital-assets markets. This legislation primarily targets stablecoins, digital assets designed to maintain a ‘stable value’ tied to official currencies or assets.
MiCA imposes stringent transparency and governance rules and prudential regulations akin to those governing traditional financial institutions. The aim is to enhance consumer protection, financial stability, innovation, and financial inclusion within the digital-asset ecosystem.
Despite these efforts, EU Commissioner Mairead McGuinness has voiced concerns about financial stability due to the absence of comparable regulations in third countries.
The United Kingdom, for instance, has enacted comprehensive legislation related to digital-assets but delegates detailed regulation to national financial authorities.
In the United States, the regulatory landscape for crypto-assets is fragmented, with state-level and federal stakeholders contributing to legal ambiguity and regulatory uncertainty.
The EPRS report underscores the academic and international community’s worries regarding stablecoins’ potential destabilizing effects on the financial system. It calls for stringent transparency requirements and effective international cooperation.
However, the report also acknowledges the delicate balance between regulation and market development. Compared to third countries, excessive regulation in the EU could stifle the growth of crypto-asset markets. Nevertheless, evidence suggests that a tighter regulatory framework can have limited but positive effects on crypto-assets markets.
The report highlights the EU’s continued exposure to risks stemming from non-EU countries’ policy actions concerning MiCA’s applicability. The potential implications include threats to financial stability, reduced market attractiveness, and hindered mainstream adoption of stablecoins.
Furthermore, the report predicts significant divergence between the UK and the EU in how crypto-assets are identified in the coming years as the UK pursues its vision of becoming a global “crypto hub.” These findings underscore the intricate challenges and opportunities in regulating the burgeoning crypto-asset industry worldwide.
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