• A new report from them ICA-TF states that crypto assets are not a threat to EU financial stability
• It was also decided that regulating only crypto gatekeepers is unsustainable

One of the various ongoing debates regarding cryptocurrency is regarding its legal status and how do current regulations apply or do not apply to them.  There is also much debate surrounding how future cryptocurrency regulations should be formulated given its unique situation and the latest of these is a May 27. 2019 report from the European Central bank’s internal crypto assets task force. The report analyzed the possible implications of crypto assets in terms of financial stability, monetary policy, payments and financial market infrastructures (FMIs)

Legal grey areas are rampant in crypto

One of the major issues highlighted in the report is the fact that cryptocurrency, by its very nature, does not have a centralized government and does not impart any proprietary right against an entity. Because of this,  the ICA-TF deems that crypto assets do not fit in the perimeter of the European Union legislation except the anti-money laundering laws.

Still, the report did not identify an immediate threat to EU financial stability. This is because existing regulations prevent cryptos from entering EU FMIs and most banks do not have relevant crypto holdings. The report, however, calls for vigilance and also to organize the growing exposure that will arise from the maturation of the crypto-assets ecosystem as well as the interest from institutional funds managers such as hedge funds and asset managers.

Due to the unique nature of cryptocurrency’s situation, the ICA-TF suggests that EU level regulation should target those who they deem as crypto-asset gatekeepers, including custody trading and exchange services providers who are the entry points for retail customers as well as institutional ones.

This approach, however, would be insufficient and the report acknowledges the limitations of an approach that focuses mainly on intermediaries in decentralized networks. The ICA-TF has proposed to subject a minimum set of principles which could ensure other networks technological integrity, transparency of algorithms and protocols, cyber-reliance and regulatory compliance. The regulation of only the gatekeepers could bring about unintended consequences and an uneven playing field could result in a shift to decentralized networks and should be accessed in holistic cost-benefit analysis.

New frameworks will eventually be needed

The report was quick to acknowledge the unusual circumstances that surround crypto-assets and how traditional laws and regulations may not readily apply to them which is more beneficial than trying to force crypto into categories where it does not belong.  

There is also the issue of regulating only gatekeepers which was deemed to not be a sustainable long-term solution. Even as the EU and other political bodies determine what exactly to do in terms of crypto regulation, these quirks and limitations must be acknowledged continuously.