US crypto crackdown spells trouble for EU regulators

US-based crypto companies are being caught in a pincer movement of sorts, with federal regulators, on the one side, launching a slew of enforcement actions and, on the other, banks getting pickier about their relationships following the collapse of Silvergate and Signature Bank in recent weeks. Could this mean more headaches for European regulators?

Just this week the world’s largest crypto exchange, Binance, felt the full force of this newfound sense of regulatory zeal on the other side of the Atlantic. In a landmark move the Commodities and Futures Trading Commission brought federal charges against Changpeng Zhao’s nomadic company, setting out a series of extraordinary allegations against the business and its senior leadership in the process. Chiefly the complaints centre on an allegation that the “opaque web of corporate entities” that comprise the group – including two companies registered in Dublin – allowed American customers to trade in crypto derivatives without registering with federal authorities.

It would appear to be part of a wider of crackdown on the sector. Separately, the US Securities and Exchange Commission recently told Coinbase that it is preparing to take legal action against the digital asset exchange over some of its offerings.

On the business side, things aren’t looking a whole lot better. Since the collapse of Silvergate and Signature Bank – two lenders with strong ties to the digital asset industry – Bloomberg reported this week that already-wary institutions are getting tougher with crypto companies, even turning away business from smaller firms. Against this uncertain backdrop, “some firms are looking at moving overseas”, Coindesk’s Kevin Reynolds wrote in an editorial this week. With the EU’s wide-ranging Markets in Crypto Assets (MICA) regulation set to come into force this year, Europe might look like a natural destination for any legitimacy-hungry crypto refugee hoping to pack up and start afresh.

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Politicians, in Ireland and across Europe, have been walking a tightrope with the crypto and, more broadly, blockchain industries, hoping to, at some point in the future, reap all the benefits that flow from innovation and growth while also keeping it at arm’s length due to its reputation.

But while MICA, which sets out tight rules for companies operating in the crypto space, will go a long way towards protecting businesses and customers from its worse excesses, recent scandals suggest that those excesses could be worse and more ingrained in the sector than lawmakers might have hoped.

It’s hard to believe that a sudden flood of crypto businesses is a headache that European regulators would be happy to endure.