The European Union is preparing to introduce a comprehensive set of rules for crypto assets in 2024, but a senior official at the European Central Bank (ECB) has warned that the proposed framework has some flaws and needs to be revised.
Elizabeth McCaul, a member of the ECB’s supervisory board, wrote in a blog post on Wednesday that the EU’s Markets in Crypto Assets (Mica) regulation will have “gaps in the framework” for regulating crypto markets and that traditional approaches to financial market oversight might not work for the fast-growing and innovative sector.
McCaul said that Mica will provide some important benefits, such as enhancing governance, segregating customer funds, and requiring external audits for crypto asset service providers. However, she also pointed out some areas that need further strengthening, such as the criteria for determining which crypto providers are considered significant and therefore subject to stricter supervision by the European Banking Authority (EBA) in co-operation with the ECB.
According to McCaul, the current threshold of having at least 15 million active users in Europe is too high and might exclude some of the industry’s biggest players, such as Binance, the world’s largest crypto exchange by trading volume. She suggested that the threshold should be adjusted to account for different business types and be measured at group level rather than individual entity level.
McCaul also challenged Binance’s claim of having no formal headquarters, saying that such firms pose “challenges for our current regulatory and supervisory approaches”. She said that no jurisdiction should allow entities to run their business without disclosing their legal status and who is responsible for the business. “Even firms that claim to have no headquarters, such as Binance, need to be ‘supervisable’,” she said.
McCaul’s comments come amid growing regulatory pressure on Binance from various authorities around the world. Last month, the US Commodity Futures Trading Commission (CFTC) filed a lawsuit against Binance, accusing it of illegally serving US clients and facilitating potentially illegal activities. The Financial Times also revealed that Binance hid substantial ties to China for several years.
McCaul said that she was proud that the EU was “taking the first steps globally to provide for oversight of the crypto world”, but she also urged policymakers and regulators to keep pace with the rapid developments and innovations in the sector. She said that Mica should be flexible enough to accommodate new business models and technologies, while ensuring consumer protection and market integrity. “We need to get this right,” she concluded.