Yesterday, on 10 September 2020, the European Parliament gave a strong signal to finally tackle the overdue regulation of Bitcoin, Libra & Co. at European level. At the moment these so-called crypto-assets are subject to insufficient or no rules at all, which has made them a romping place for criminals and fraudsters for years. A comprehensive regulatory framework is urgently needed to curb criminal activity and provide legal certainty for legitimate innovative companies. At the same time, the technology behind virtual currencies offers great opportunities for innovation and efficiency in the financial system. The Committee on Economic and Monetary Affairs (ECON) has now adopted by a large majority a so-called legislative own-initiative report, which makes strong proposals to the European Commission for a regulation of crypto-assets. The committee’s vote is a recommendation for the plenary session of the European Parliament, which is expected to vote on it in early October. Commission President Ursula von der Leyen has committed herself to always respond to such an own-initiative report with an appropriate legislative proposal. Yesterday, an early draft version of a Commission legislative proposal dealing with crypto-assets was leaked.
It comes rather unexpected that the ECON Committee has adopted such a strong report. In June, the liberal rapporteur Ondřej Kovařík had initially presented a completely toothless draft report, which contained many commonplaces but practically no concrete proposals for a regulation of Bitcoin, Libra & Co. It was only thanks to intensive negotiations in the committee that it was possible to strengthen the report considerably and include many meaningful requirements.
The following points have been central to us Greens and are included in the report adopted yesterday:
Comprehensive rules on money laundering and customer identification
Studies and media reports repeatedly show that crypto assets are used for illegal activities to a considerable extent. The report therefore calls for anti-money laundering rules to be systematically and completely extended to the field of crypto-assets and, above all, for providers and players to be obliged to reliably identify transaction partners (so-called know-your-customer principle, KYC). In particular, this is intended to ensure that authorities investigating crime can identify the beneficiaries of payments with little effort. Such strict rules would make it much more difficult for criminals to use crypto-assets for activities such as for money laundering, ransomware attacks or the trade in illegal goods.
Strict regulation of Libra & Co
So-called stablecoins promise a fixed exchange rate against a normal currency, such as the euro, or a basket of currencies. Without a strict regulatory framework, there is a danger that major projects like Facebook’s Libra could develop into alternative monetary systems in which it is no longer the state but powerful financial corporations that control our money. The report calls for stablecoins to comply with the existing requirements for so-called e-money, which, among other things, obliges providers to exchange stablecoins for normal currency at par at any time and to keep customers’ money safely segregated. In plenary, we will push for a yet stronger emphasis on the risks to financial stability and democratic control.
Rules also for providers from third countries
As crypto-assets are not bound by national borders due to their digital nature, there is a high risk that providers from outside the European Union will undermine European rules, for example on consumer protection or money laundering. The report therefore calls for the creation of legal rules and mechanisms to ensure that third-country providers also comply with the rules.
Single European supervision
The report calls for the development of a European supervisory model and stresses the importance of closer cooperation between European and national supervisors in the field of crypto-assets. We Greens believe that Europe should go one step further and create a single European supervisory authority for crypto-assets. We will again propose this in the plenary vote.
Virtual euro by the ECB
A virtual euro could give European citizens access to cheap, fast and secure transactions. This field should not be left to private sector initiatives, which pose significant risks to financial stability and democratic control. The report therefore invites the ECB to investigate the introduction of a digital euro.
Frightening ecological footprint of many crypto-assets
Many existing crypto-assets have an enormous electricity consumption that is screamingly disproportionate to their questionable utility. The report therefore calls for the environmental footprint to be taken into account when designing the legal framework for crypto-assets.
Yesterday’s vote is an important step to finally put an end to the serious deficits with regards to consumer protection and the fight against crime in the field of crypto-assets, but also to the legal uncertainty for innovative companies. After the vote in the European Parliament plenary in October, it will be up to the new Finance Commissioner Mairead McGuinness to take up the strong proposals and come up with a convincing regulatory framework for crypto-assets. We will stay tuned!
With green European greetings,
Link to the legislative initiative report on Digital Finance that has been adopted by the ECON committee yesterday (will only be published in the coming days):
Link to the leaked legislative proposal by the Commission:
P.S.: Save-The-Date | Italian-German webinar on “Funding the Corona Recovery by curbing tax dumping and money laundering” with Finance Ministers Scholz (Germany) und Gualtieri (Italy) on Wednesday, 30.9.2020 7-8pm. Register here: https://us02web.zoom.us/webinar/register/WN_Tt9-EIA_Q9-1eC_QetcPCg