Cryptocurrency exchanges face an uphill battle for EU approval

As European regulators crack down on unlicensed cryptocurrency exchanges, getting approval is proving to be a challenge.

Last week, for example, De Nederlandsche Bank (DNB), the Dutch central bank, announced that it had fined cryptocurrency exchange Coinbase 3.325 million euros (about $3.6 million) for operating in the country without a license before the company obtained one in September of last year.

The fine follows a similar fine that DNB imposed on Binance in July, as the company continues to operate in the country without the necessary permits.

Overall, DNB has only granted a limited number of licenses and the latest fines demonstrate the difficulty cryptocurrency firms face in the absence of an EU-wide crypto licensing passport, an issue that should be resolved with the Approval of long-awaited EU deal regulating Markets in Crypto Assets (MiCA) this year.

This does not solve the challenge in the UK, however, as companies wanting to offer their services in the country will need to get further approval from the Financial Conduct Authority (FCA).

And as the financial regulator revealed this month, only 41 of the 260 cryptocurrency businesses that applied for registration in January were approved, representing just 15% of the total number of applications received. For the remaining 85% of companies that either withdrew or were rejected, the FCA has offered feedback on what it considers a “good” application.

Expansion of oversight beyond anti-money laundering

At present, the European regulatory sanctions have been administered on the basis of the anti-money laundering legislation (AML). For example, in the Netherlands, the DNB is the authority responsible for ensuring that crypto firms comply with relevant anti-money laundering laws, while the FCA has a similar duty in the UK

Under MiCA, EU regulators will have an expanded supervisory mandate that will bring most cryptocurrency services to a regulatory standard comparable to the traditional financial sector, with rules in place for consumer protection, avoidance prevention taxation as an enhanced anti-money laundering framework.

Meanwhile, the UK is set to diverge from the EU on cryptocurrency regulation in 2023.

For example, while the Financial Services and Markets Bill (FSMB), which is currently in parliament, will give the FCA more scope to regulate crypto companies beyond the AML, this will largely be limited to stablecoins, with the country still to develop a MiCA- legislative instrument dedicated to the sector.

That’s not to say that UK politicians haven’t expressed an interest in more legislation, however.

Indeed, as part of a large investigation into the country’s cryptocurrency sector, the Treasury Committee has engaged with the FCA and key stakeholders on industry developments, most notably a parliamentary meeting last December on the ramifications of the FTX scandal. and its effect on British consumers.

In response, Sarah Pritchard, executive director for markets at the FCA, said the regulator was “very concerned” that consumers who interact with crypto platforms are not sufficiently aware of the risks involved.

Furthermore, while the FCA issued a warning about FTX’s illegal operations in the country before its collapse, Pritchard reminded members of parliament present that the regulator is limited as its consumer protection mandate does not currently extend to the cryptocurrencies.

Similarly, Matthew Long, director of payments and digital assets at the FCA, noted that had the FCA been given a broader range of powers to regulate the digital assets space, the financial watchdog would have been better placed to repay investors who lost funds in the stock market crash.

“If it were in the regulation, we would have a liquidation plan where we would look at each of those people’s investments and make plans for their repayment to be properly considered,” Long told the committee.

For now, Treasury Committee members appear to have taken note, expressing concern that the industry is currently underregulated and that more laws will be needed to protect consumers in the future.

For example, in response to the FCA’s recently announced data on crypto firm application approvals, committee chair Harriet Baldwin acknowledged that a review of statistics and an ongoing investigation into cryptocurrency regulation “have not disappointed us about the impression that parts of this industry is a ‘Wild West’”.

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