Europe to accelerate regulation of cryptocurrency to tighten sanctions on Russia

The European Union is seeking to speed up the push for new cryptocurrency rules, amid concerns that digital tokens could be used to circumvent sanctions imposed on Russia in the wake of the invasion of Ukraine.

An EU official said that the European Parliament and member states discussed, last Thursday, the possibility of shortening the implementation period of proposed EU rules by two years, known as “crypto asset markets” (MiCA) during the first round of talks aimed at finalizing them.

When EU officials proposed shortening the timeframe for implementing new cryptocurrency rules earlier this week, countries including Ireland, Spain, Poland and Luxembourg were open to the idea, according to people familiar with the discussion.

European Union countries and G7 allies are concerned that crypto assets could be used by "Russian oligarchs" to evade sanctions imposed since President Vladimir Putin's invasion of Ukraine. Although there has been no significant increase in the volume of transactions, the European Central Bank and governments insist that the proposed regulation of “crypto-asset markets” will help avoid risks.

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People familiar with the talks said EU negotiators support the need for a quick agreement, but an EU official said the two sides disagree on some important issues that could prolong the talks.

The “Crypto Asset Markets” was proposed in September 2020 to regulate the crypto sector, with the aim of ensuring financial stability and consumer protection in the whole block with the same rules. The European Commission said the current absence of EU regulations on the crypto sector leaves consumers and investors exposed to significant risks.

One of the outstanding issues in the current talks is the environmental safeguards that EU lawmakers want to introduce, as the European Parliament has proposed including crypto assets in the EU’s classification of “green” activities to monitor whether they have been mined in accordance with the sustainable principles of the European bloc. .

Some political groups, including the Greens, wanted to go further, initially proposing a ban on energy-intensive mechanisms supporting cryptocurrencies, which would lead to the exclusion of Bitcoin and other assets from the European market.

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People familiar with the deliberations confirmed that Ireland, Sweden, Poland and Spain were open to including some climate provisions, but an EU official warned that it would be difficult to persuade a majority of member states to agree to these new guarantees because they were not part of the original negotiating mandate.

Cryptocurrency monitoring
Another point of contention is the supervisory structure. The original plan, submitted by the EU's executive arm, with the support of member states, envisaged EU oversight of important stablecoins, as well as electronic money tokens based on the single currency. The European Parliament expanded the scope by adding crypto-asset service providers under the EU umbrella.

The European Commission and member states have proposed making the European Banking Authority responsible for the bulk of the oversight, while Parliament has proposed a division in which the European Securities and Markets Authority would monitor stablecoins, while the European Banking Authority would regulate electronic money tokens.

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In parallel discussions, two sessions of the European Parliament on Thursday endorsed a proposal to require cryptocurrency transfers to include information about the identities of payers and payees. The European Union is discussing this as part of an anti-money laundering campaign to prevent crypto assets from being used to facilitate criminal transactions. EU lawmakers have also proposed including these clauses in the “crypto-asset markets” package.