EU finance chief urges US to create new crypto rules

The European Union’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 allowed to grow unchecked.

Mairead McGuinness, the European Commission’s finance commissioner, told the Financial Times that any regulation imposed on the industry must be global to work.

“We need to see other players also legislate,” McGuinness said, referring to countries starting to follow the EU’s lead on crypto regulation, “perhaps differently, but with the same goal . . . We need to look at global regulation of crypto.”

The Irish commissioner spoke during a trip to Washington, DC, where she met with politicians at the heart of negotiations on Capitol Hill over how to regulate the industry, including Republican House member Patrick McHenry and Democratic Senator Kirsten Gillibrand.

She said she was encouraged by these meetings and that she believed US politicians were “moving in the same direction” as those in the EU. But she added: “There is a lot of concern at European level about [what would happen] if crypto were not to be regulated.

“There may arise – over time, if it grows – problems with financial stability. There are also investor problems around a lack of security.”

The EU is internationally recognized as having one of the most comprehensive regimes surrounding cryptocurrencies, in the form of a new regulatory framework that passed its final phase in the bloc earlier this month. These rules will govern everything from who can issue stablecoins to monitoring the industry’s environmental impact from 2024.

US President Joe Biden has also spoken about the importance of regulating the crypto industry, but members of Congress are divided on how to do so. The Securities and Exchange Commission has taken an aggressive stance on crypto exchanges, but the coins themselves are still subject to very little oversight.

Those close to the negotiations on the Hill say the two sides are still months away from agreeing on key issues such as how to regulate the $150 billion market for stablecoins — a category of cryptocurrency backed by real assets such as cash and short-term bonds.

McGuinness’s comments echo those made by the Financial Stability Board last week, calling for a global framework to guide countries in their crypto regulatory efforts.

Earlier this year, the popular cryptocurrency terraUSD crashed despite promising investors some degree of stability by pegging the 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 owners’ money, sparking concerns among regulators around the world about what might happen if the industry continues to grow at its current pace without additional consumer protections.

Members of Congress have said that regulating the stablecoin industry is their first priority. They are close to agreeing on a draft that would put the industry under the auspices of the Federal Reserve and implement a two-year ban on algorithmic stablecoins like terraUSD.

However, members have not agreed on how strict the consumer controls should be for buyers of stablecoins, nor exactly how much power the Fed should have over the industry.

Longer-term questions — such as whether cryptocurrencies should generally qualify as securities to be regulated by the SEC, or commodities to be governed by the Commodity Futures Trading Commission — remain even further away from agreement.