The European Banking Authority said Jan. 9 that crypto-assets typically fall outside the purview of European Union financial services regulation and suggested new rules may be required to protect consumers from risk and avoid unfair competition stemming from divergent national regulation.
Meanwhile, the European Securities and Markets Authority also said in a Jan. 9 report that bespoke national regulation does not provide a level playing field and an EU-wide approach is necessary. It added that current regulation needs to be reinterpreted and fine-tuned for certain crypto-assets that qualify as financial instruments under MiFID, or Markets in Financial Instruments Directive, rules. There is also a need for new rules for such assets that do not qualify as financial instruments.
The EBA added that crypto-asset related activity in the bloc remains low and does not pose a threat to financial stability. But both the EBA and ESMA are concerned about risks to investor protection and market integrity.
The banking watchdog said the European Commission should further analyze the sector and determine whether an EU-level response is necessary and what it should be since it is best suited to the task. Additionally, a review of EU's anti-money laundering legislation is necessary due to new risks arising from the use of crypto-assets.
Even though regulators are aware of the financial institutions that own and employ crypto-assets directly, there is little data on their activities, the EBA said. As such, the regulator intends to enhance its monitoring of the sector and create a "common monitoring template" to help competent authorities keep checks on the level and type of activity being carried out, as part of an information-gathering exercise.