The European Union is working on a regulatory framework for cryptocurrencies with the purpose of making traders anonymous while banning anonymous virtual wallets. Meanwhile, the U.S. government is laying more groundwork for potential cryptocurrency regulation in the future.
Updated and Harmonized Legal Framework Across the EU
Trading platforms will have to collect the data identifying individuals selling and buying cryptocurrencies. This is one of the provisions appearing in a set of cryptocurrency market rules put forward by the European Commission. European officials say the measures “will help the EU crypto-asset industry to grow as it will benefit from an updated and harmonized legal framework across the EU,” according to a statement issued by the European Commission, as quoted by Euronews.
The EU executive has recently announced a package of reforms aimed at fighting financial crime in the bloc. Part of the package concerns the cryptocurrency market. “The aim of this package is to improve the detection of suspicious transactions and activities and close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system,” the European Commission said in a statement.
This recent law will establish a new EU-wide anti-money laundering authority (AMLA), with oversight in the field of cryptocurrencies, by 2023.
Cryptocurrency Transactions Will Be Similar to Traditional Currency Transactions
Some crypto-asset service providers are already covered by EU anti-money laundering and anti-terrorist financing rules, but the bill would extend these rules to the entire sector. This would bring cryptocurrency assets in line with bank transfer regulations. In practice, this means that service providers exchanging cryptocurrencies on behalf of clients would have to register the names, addresses, dates of birth and account numbers, as well as the names of the individuals receiving the money.
Anonymous crypto-asset wallets would also be banned under the new law. “These proposals are designed to strike the right balance between addressing these threats and complying with international standards, without creating an excessive regulatory burden on the industry,” the European Commission said.
EU states and the European Parliament have the final say on the proposals, which means it could take up to two years for the new rules to come into force.
Crypto Regulation in the U.S.
In the United States, cryptocurrencies have been the focus of much attention by both Federal and state governments. Within the Federal government, most of the focus has been at the administrative and agency level, including the Securities and Exchange Commission (SEC), the Commodities and Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), and the Department of the Treasury, as well as the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN).
While there has been significant engagement by these agencies, little formal rulemaking has occurred. Generally speaking, Federal agencies and policymakers have praised the technology as being an important part of the country’s future infrastructure, while also speaking of the need to maintain a leading role in the technology’s development.
There is no single definition of “cryptocurrency,” which is often referred to as “virtual currency,” “digital assets,” “tokens,” “cryptoassets,” or simply “crypto.” While some jurisdictions have attempted to formulate a detailed definition for the asset class, most have wisely opted for broader, more technology-agnostic definitions. Those taking the latter approach will be better positioned to regulate as and when the technology evolves.
Federal Reserve Looks at Regulating Stablecoins
In the U.S., things have also started to move. Federal Reserve Chairman Jerome Powell spoke recently about the Fed’s interest in regulating stablecoins and the potential for a central bank digital currency (CBDC) while testifying before the U.S. House Committee on Financial Services.
Stablecoins (such as Tether and USD Coin) are a category of cryptocurrencies that peg their value to an existing fiat currency, like the U.S. dollar. That helps stabilize their value, so they’re better suited for digital payments—unlike more volatile digital assets, like Bitcoin. Ideally, these coins are underwritten by a reserve of the currency they’re tied to, but today there’s little official regulation enforcing that.
Powell compared them to money market funds or bank deposits, which have a robust regulatory framework in the United States. “That doesn’t exist for stablecoins,” he said, as quoted by Time.com. “And if they’re going to be a significant part of the payments universe—which we don’t think crypto assets will be, but stablecoins might be—then we need an appropriate regulatory framework, which frankly we don’t have.”
In addition, the Fed plans to ask the public about the risks and benefits of cryptocurrency and a potential CBDC, alongside consultation with national groups, including Congress.