The European Union is currently investigating the potential benefits of adopting a set of common rules regarding the distribution and trading of cryptocurrencies and digital assets, with a report calling for stricter disclosure roles set to be considered by EU finance ministers later this week.
The report, prepared by Brussels-based think tank Bruegel for EU finance ministers, will be assessed during cryptocurrency regulation discussions on Friday and Saturday. Reuters analysis states that the document calls for EU-level regulation of crypto exchanges, notably arguing for clearer rules for initial coin offerings (ICOs) that minimize the risks associated with unregulated token offerings.
EU-Wide Regulation Under Consideration, Mining Ban Suggested
The Bruegel report will be assessed by EU finance ministers and regulators later this week alongside discussions on the financial stability implications of increasing interest rates. Regulation of cryptocurrencies within the EU currently operates on a state basis, with regulators hesitant to implement comprehensive regulation due to a lack of consensus on regulatory action and the relatively small impact of cryptocurrencies on the EU economy.
The growing interest in cryptocurrencies and the potential for fraud presented by cryptocurrencies, however, has alerted EU regulators to the potential risks of fragmented regulatory policy. Research published by venture capital firm Atomico demonstrates that 46 percent of all capital raised in ICOs since 2014 has been generated by European-based entities, resulting in over $1.76 billion into a largely unregulated market.
Preparatory documents viewed by Reuters state that Austria, which currently holds the rotating EU presidency, is questioning the current cryptocurrency regulatory paradigm within Europe, stating that EU regulations could potentially require modification to address the “potential risks posed by crypto assets” while still harnessing their full potential.
Stricter cryptocurrency regulation, argues Bruegel, cannot be enforced via an outright ban on digital currencies such as Bitcoin due to their decentralized, virtual nature. Entities dealing with cryptocurrency instruments such as exchanges, however, could potentially be subject to stricter disclosure rules.
Bruegel also notes that while cryptocurrencies cannot be eliminated, the infrastructure that drives them—mining farms—can potentially be banned, stating “as done in China, mining farms can be forbidden.”
While the Bruegel report that will be assessed by EU finance ministers investigates the potential vectors of regulatory enforcement, it also highlights the need for a nuanced approach to regulation that provides sufficient time “to experiment and learn about the best approaches to this fast-developing [blockchain] technology.”
EU Regulators Discuss New ICO Regulations
The upcoming EU finance summit in Vienna has been preceded by a recent EU parliamentary discussion focusing on the future of ICO regulation within the EU. The EU parliament All-Party Innovation Group held a meeting on Tuesday, Sept. 4, to assess a proposal submitted by Member of Parliament Ashley Fox that would implement strict new regulations aimed at minimizing fraud within the ICO ecosystem.
The proposal calls for increased Know Your Customer and Anti-Money Laundering requirements for ICOs as well as a limit of 8 million euros for any token-based crowdfunding initiative, proposing that token sales that collect less than this limit should be permitted to raise capital through their platforms using certain cryptocurrencies under a new regulatory model.
While the new regulatory model would limit the total amount of capital that could be raised by EU-based ICOs, it could potentially see the ICO model legitimized in all of the 28 EU member-nations. No definitive decisions regarding the proposal have been announced by the EU Parliament to date and Parliament Members are able to submit amendments to the proposal by Sept. 11.