The EU’s financial services chief has urged US politicians to draw up sweeping new rules to govern the crypto industry, warning that digital assets could pose a threat to financial stability if left to grow unchecked.
Mairead McGuinness, the European Commission’s financial services commissioner, told the Financial Times that any regulation imposed on the industry would need to be global to work. “We do need to see other players also legislating,” Ms McGuinness said, referring to countries that are beginning to follow the EU’s lead on crypto regulation, “perhaps differently, but with the same objective . . . we need to look at global regulation of crypto.”
The Irish commissioner was speaking during a trip to Washington DC, where she met politicians at the heart of negotiations on Capitol Hill over how to regulate the industry, including the Republican member of the House Patrick McHenry and the Democratic senator Kirsten Gillibrand.
She said she was encouraged by those meetings, and that she believed US politicians to be “moving in the same direction” as those in the EU. But she added: “There’s a lot of concern at a European level as to [what would happen] if crypto were not to be regulated. There could be – in time, if it grows – financial stability problems. There also are investor issues around a lack of certainty.”
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The EU is internationally recognised as having one of the most comprehensive regimes around cryptocurrencies in the form of a new set of regulations that passed its final stage in the bloc earlier this month. Those rules will govern everything from who can issue stablecoins to monitoring the industry’s environmental impact from 2024.
US president Joe Biden has also talked of the importance of regulating the crypto industry, but members of the US Congress are split over how to do so. The Securities and Exchange Commission has taken an aggressive stance towards crypto exchanges, but the coins themselves are still subject to very little oversight.
Those close to negotiations on Capitol Hill say the two parties are still months away from reaching agreement on key questions such as how to regulate the $150 billion (€152 billion) market for stablecoins – a category of cryptocurrency backed by real assets such as cash and short-term bonds.
Ms McGuinness’s comments echo those made by the Financial Stability Board last week, calling for a global framework to guide countries in their crypto regulation efforts.
Earlier this year the popular cryptocurrency terraUSD crashed despite promising investors a degree of stability by pegging its currency to the dollar via an algorithm that automatically raised or cut the number of coins in circulation.
The crash wiped out $40 billion of holders’ money, and sparked concern among regulators around the world about what could happen if the industry were to continue to grow at its current pace without additional consumer protections.
Members of the US congress have said regulating the stablecoin industry is their first priority. They are close to agreement on a draft that would put the industry under the auspices of the Federal Reserve and implement a two-year ban on algorithmic stablecoins such as terraUSD.
Members have not agreed, however, on how strict the consumer checks should be for stablecoin purchasers, nor exactly how much power the Fed should have over the industry.
Longer-term questions – such as whether cryptocurrencies in general should qualify as securities to be regulated by the SEC, or commodities to be ruled over by the Commodity Futures Trading Commission – remain even further from agreement. – Copyright The Financial Times Limited 2022
