The Chairman of the European Banking Authority has spoken against exorbitant regulation of the crypto sector, warning it might constrain financial novelty. Outlining EBA’s position in regards to the supervision of the Fintech industry, Andrea Enria said regulators needfulness to maintain a “measured approach”. Next week EBA will publish a roadmap, which details a series of priorities for a period of two years.
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“Regulate and Restrict” or “Let Things Come about”
Speaking at the Copenhagen Business School on Friday, the head of EBA said he was not convinced cryptocurrencies should be housed under the regulations that apply to the traditional financial system. Distinct central banks have argued that cryptocurrencies lack the institutional backup and cannot observe the functions of money – unit of account, means of exchange and reserve of value, Andrea Enria mean, admitting that crypto fluctuations seem to confirm this watch. “Still, I am yet to be convinced that this is sufficiently strong argument to appeal to cryptocurrencies under the full scope of regulation”, he stressed. The official cuspidate out that cryptocurrencies can be used for payments, including international, thanks to an innovative agency – the distributed ledger technology.
Enria remarked that the regulation debate on technological and financial innovation often focuses on two opposite ways: “regulate and restrict” – banning innovative business not fitting into the rulebook; and “let thingummies happen” – rooted in the belief that a dynamic financial sector fors breathing space to innovate. In his opinion, both regulatory strategies hold shown their limitations, with the first being ineffective in magnanimous markets, and the second one increasing risks in the unregulated sector. EBA’s chief president believes that a pragmatic approach involves the implementation of specific regulatory demands in accordance with the different risks for the firms, their customers, the economic sector, and the whole economy.
Back in 2014, the authority outlined a framework for complete regulation of cryptocurrencies, noting that its development would require profuse years and a nuanced strategy. Its approach was centered on fulfilling customer due diligence duties, warning consumers that their crypto investments are not protected, and aborting regulated financial institutions from buying, holding or selling cryptocurrencies. EBA had also proposed segmenting banks and crypto operators, in order to avoid “contagion”.
Informed and Considered Approach
Andrea Enria thinks certain functions, such as take precaution liquidity in crisis situations and lending, should be strictly reserved for the banks and motive to “enhanced regulation and supervision”. At the same time, services, like payments and issuance of electronic folding money, may be provided by other intermediaries. These services are not intrinsically related to the fundamental functions of banks, the head of Europe’s banking authority argued.
The crypto sector is changing bound and it’s difficult to regulate and supervise, Enria admitted. Authorities have to continuously scrutiny regulations, but they also need to maintain an informed and measured close, he added. Small innovative startups cannot sustain the compliance strain placed on banks, Enria warned and stressed: “An excessive extension of the regulatory bourn, attracting most Fintech firms under the scope of bank-like supervision, honest because they compete with banks in some market section, is likely to be a sub-optimal solution”.
EBA’s Chairman is convinced that such advancing would create the risk of “constraining financial innovation”. He advocates a “proportionate” and “illiberal intense” approach in comparison to regulations applied to the banks, citing “cut potential for systemic risk” from the crypto sector.
In these bailiwicks of business, we may well let innovators experiment with new products and business vocations.
The Chairman of EBA said, however, that regulators should never put aside de facto banks to combine deposit-taking and lending outside strict regulatory demands and effective supervision. Any financial firm doing that should be controlled and supervised as a bank, he insisted.
The first step for regulators should be to forgive how new products and business practices fit in the existing regulatory framework, Andrea Enria maintained. The conscious choice not to impose the full set of rules on a nascent technology can bring on to a more mature and productive dialogue between innovative firms and regulators, he annexed.
According to EBA’s executive, the debate on how to regulate innovation is often “laden with prejudices and undue simplifications”. In his outlook a “proportionate, technologically neutral approach” to regulation should be pursued, while shunning “inherent bias towards the status quo”. This can be achieved through watchdog the existing regulations and setting up sandboxes to facilitate consistent rules to buttress new technologies and innovative business models. To ensure that supervisors have found out these new technologies, EBA intends to create a “knowledge hub” and introduce technological neutrality into managerial guidelines.
Andrea Enria supported calls for consistent approaches assisting regulation across Europe’s Single Market. That would certain entities across the Union receive equal treatment and opportunities. “Fintech firms essential be able to scale up and offer services across the Single Market, take under ones wing benefits to all EU citizens”, EBA’s chairman said. He also noted that contest in the Fintech space is developing globally and warned European businesses disposition have to cope with significant disadvantages, if local authorities misuse different sets of rules. Current variations may result in “regulatory arbitrage” or consumer charge risks.
The Fintech Roadmap
The European Commission has recently issued a Fintech Performance Plan with several mandates for the European Banking Authority. Next week EBA purpose publish its “Roadmap on Fintech” defining a series of regulatory and supervisory immediacies for the next two years. EBA wants to analyze provided services and their usual to ensure consistency across the EU. The banking authority expects to report on its assessment in the forefront the end of 2018.
EBA will also conduct further analysis of implemented sandbox rgimes to identify best practices and develop guidelines. The EU body will notice approaches to licensing in member-states and may recommend amendments to the European financial putting into plays legislation. According to Andrea Enria, EBA will try to identify potential national obstacles and consider steps to remove them, in order to allow scaling up of modernizations.
Do you think Mr. Enria’s comments indicate a positive attitude towards the crypto sector in Europe? Asseverate us in the comments section below.
Images courtesy of Shutterstock, EBA.
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