DAVOS, Switzerland — New European Union crypto rules are pointless unless the rest of the world follows suit, the bloc’s leading financial-services official told CoinDesk at the World Economic Forum on Thursday.
European Commissioner Mairead McGuinness said the turmoil in the crypto market has given extra ammunition to those pushing for a global rulebook, but warned future crypto innovations need to be focused on people.
“It's great that we can say that” the EU is the first major jurisdiction in the world to regulate the sector with its landmark Markets in Crypto Assets regulation (MiCA), McGuinness told CoinDesk on the sidelines of the meeting in Davos. “But there's no point in Europe being on its own, because this is a global development, and we can't put barriers on it.
“If we fail to do that global approach, we're going to find that there's more and more problems,” McGuinness said. “The technology is borderless.”
Read more: European Union Postpones MiCA Vote to April
The seeds of a likely global crypto regulatory framework have already been set by the Financial Stability Board, an international group that makes recommendations about the global financial system. Klaas Knot, the board's chairman, told an audience in Davos that he wants to complete controversial proposals before the summer. But McGuinness was honest about the practical challenges of implementing international rules.
“I do hope there is” global crypto regulation, she said. “But you know, when it comes to climate change, we all want global things to happen, and they're not, so sometimes somebody has to start the process.”
MiCA, which is set to be formally approved by the European Parliament in April, sets reserve requirements for stablecoins – cryptocurrencies that are typically pegged to the U.S. dollar – and governance rules for crypto companies. The fear is that MiCA will be undermined if exchanges or digital-wallet providers try to serve EU customers from regulatory havens, which McGuinness referred to as “sunny places for shady people" – something fellow European regulator and head of the Financial Stability Board, Klaas Knot, had said earlier during a panel on finding the right balance for crypto.
The travails of 2022 when many major crypto firms collapsed, including Bahamas-based crypto exchange FTX, stablecoin issuer Terraform Labs and lenders Voyager Digital and Celsius Network, may help McGuinness in her quest.
“We're now, I think, in a good place because we have seen very visible examples of how things can go wrong,” she said. “I think the world now knows that, if it happened there, it can happen anywhere, so let's talk.”
FTX’s founder and former CEO, Sam Bankman-Fried, is now facing multiple criminal charges in the U.S., including conspiracy to commit wire fraud and money laundering, to which he has pleaded not guilty. But McGuinness argues regulation is needed even for less egregious cases.
Some people got involved in crypto because of their distrust of the establishment and excitement about technology, and “it just went to their head and got out of control, and then there are casualties from that,” she said.
“There’s still, I think, an unfinished debate about what the problem is, or is there a problem with crypto inherently?” she said. “People with the best intentions can make business mistakes, and crypto people can make big business mistakes that then impact on individuals, or further down the financial system.”
Even once MiCA takes effect around the start of 2025, it won’t be the end of the story. Crypto evolves quickly and “we will have to tweak what’s in place,” McGuinness said, but she also cautioned against rushing to regulate areas such as decentralized finance (DeFi) that aren’t well understood yet.
“We need to get our heads around all of this,” she said. “DeFi – you ask the man or woman in the street what this is, and really they do not know, so we need to be very careful that we're not running ahead of ourselves.”
One option is to “have places or sandboxes where we can test things out before making it freely available, and decide based on the test whether it's going to work or whether it's not,” she said, citing an approach the EU has taken in experimenting with distributed ledger technology-based securities trading.
Meanwhile, crypto providers also need to remember what they are trying to achieve, and whom they are serving, she said.
“Sometimes you forget when you're talking about technology, this is ultimately about European citizens … they want service,” she said. “We may see pushback against this over excitement around the evolutions of finance.”
As examples of pushback, she cited lawmakers’ frustration over the closure of bank branches and ATMs, and her own personal – but relatable – frustration at waiting on hold for 45 minutes with a financial-services provider.
“If I were in the financial system, I would be thinking, how do we avoid that disconnect from our customers?” she said. “This excitement around technology is super wonderful … but don't underestimate that it has to be human-centered.”
Update (Jan. 19, 2023, 19:07 UTC): Clarifies Commissioner McGuinness is referring to a statement made by Financial Stability Board Chair Klaas Knot on "sunny places for shady people" in paragraph seven.
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