The ECB says incoherent EU encryption regulations increase the risk

The European Central Bank (ECB) is concerned about the different cryptocurrencies in the EU member states, and it will encourage them to harmonize the various rules until the Markets in Crypto Asset Regulation (MiCA) becomes law and it is fully implemented.

On Thursday 30 June, EU policy makers celebrated the agreement reached between the various institutions on the scope of the new crypto-regulation that will govern this space in Europe for years to come, MiCA. However, this new legislation will only be fully implemented 18 months after the text is published in the EU’s official journal. This delay in the implementation of the law will generate a gap in the legal framework of around two years. During this time, European countries will have to apply their national laws, if they have any, or continue to leave the sector unregulated even though banks and financial technologies require clarity.

The ECB is set to warn eurozone countries about the dangers of national regulators taking precedence over MiCA and proposing new rules that could affect future harmonization of rules. The central bank is likely to address the need for “harmonization” at a meeting of the supervisory board on Tuesday, July 5, according to the Financial Times.

“It is very challenging,” said a national regulator in one eurozone country. “With MiCA 18 months away, are you better off saying, ‘until it’s in, do what you like, there’s no regulation’ or is it better to try to get it?”

In addition to establishing common rules for all EU countries, MiCA will also change the registration and authorization process for crypto asset suppliers in Europe. The power to register and authorize companies will move from national authorities, as it is now, to EU authorities. As EU parliamentarian Enrnest Ustasun said after reaching an agreement on MiCA, there is a “new crypto-sheriff” in the city, the European Securities Markets Authority (ESMA), with “authorizations to prohibit or restrict the provision of crypto-asset services from crypto-asset service providers (CASPs) or the distribution or sale of crypto-assets, in the event of a threat to investor protection, market integrity or financial stability.”

Read more: EU agreement on crypto regulation limits Stablecoins, omits NFTs and DeFi

However, prior to the adoption of the MiCA, some EU countries adopted legislation regulating various aspects of cryptocurrencies. For example, Germany has been one of the most proactive countries in regulating digital assets. It used the EU’s 2022 anti-money laundering directive to require companies that have or facilitate trading in cryptocurrencies to apply for special licenses under German banking law. The German regulator, BaFin, said the regime was “largely equivalent” to MiCA and has given only four licenses so far to FinTechs, and none to traditional banks.

The Netherlands and Spain have also been active, focusing their efforts on registration for AML compliance. On the other hand, France has recently been criticized for being very lax in the application of the rules and allowing Binance to obtain a license to operate in the country.

Read more: French legislator criticizes Binance approval

The ECB is concerned that countries are starting to grant crypto-related licenses to traditional banks when a pan-European framework is not yet in place. The central bank wants to discuss the need to harmonize the offer of these licenses across countries before MiCA is fully implemented.

Andrea Enria, chair of the ECB’s Banking Supervision Council, told MEPs last week that the ECB saw “differences in national crypto regimes” and that a level playing field “would be important”. He said it would be to “focus on internal principles to ensure you have a consistent authorization [and] licensing process for banks operating in these areas. “

Although the ECB is not part of the MiCA negotiations, the member states are – and they can still propose changes to the text or introduce new provisions to close the 18-month implementation gap.