No Bitcoin regulation due before 2020 under EU’s wait-and-see approach

1 March 2018 11:44am

26 February 2018. By John Rega and Tsering Namgyal.

The EU’s “wait-and-see” approach to regulating Bitcoin and other virtual currencies could push new rules back until at least 2020, given the handover due next year in both the European Commission and European Parliament.

Europe won’t move unilaterally on regulating such cryptocurrencies, the commission’s financial chief, Valdis Dombrovskis, said today, unless international talks don’t yield any progress.

The best approach is to work with other regulators around the world, “since this is a global phenomenon,” Dombrovskis told reporters. Officials estimate that the EU accounts for only 4 to 5 percent of global trading in digital currencies.

Under normal timeframes, that doesn’t give the EU institutions enough time to get things passed before a new commission takes power and the parliament holds elections — both due in mid to late 2019. Commission officials see the coming May as the informal deadline for major new proposals to have a chance of being passed before then.

Wild price gyrations and concerns of retail investors being exposed to virtual currencies have led to calls for quick regulatory action. The commission today hosted a roundtable meeting with regulators and experts that could have yielded a fasttrack initiative, but eventually decided against a unilateral move.

France and Germany are pushing for the Group of 20 finance ministers to take up the issue at meeting in Buenos Aires next month. Paris and Berlin have suggested that the group of economic powers ask international regulatory bodies to come back by July with proposals for further action.

“We need to work together with the G-20 and other international standard-setters," Dombrovskis said. Any decision for the EU to push ahead on its own “will depend on how those international discussions go.”

Existing rules

Any European move would also come after an assessment by financial regulators of whether existing rules are sufficient to contain the risks to investors and to financial stability, the Latvian commissioner said.

The EU agencies for markets, banking and insurance have begun that work. They’ve warned savers and held preliminary discussions of how securities laws may apply to areas such as initial coin offerings by blockchain startups.

But a more thorough review, as mandated by the commission, could take until late this year. And even if European regulators work in parallel with global bodies, they would only be setting the table for Dombrovskis’s successor, due to arrive in late 2019.

Emergency measures

The commission does, of course, have latitude to take urgent actions late in its terms. An emergency that required urgent regulation of digital currencies could override all of the above considerations.

After financial markets teetered on the brink of collapse a decade ago, commissioner Charlie McCreevy’s internal-market department sketched the outlines of a derivatives overhaul in the closing weeks of his term; his successor Michel Barnier picked up the baton.

But that was a globally mandated measure responding to a generational crisis.

While authorities nowadays voice concerns that a Bitcoin bubble could upset markets, they have already taken steps to insulate banks and other sensitive sectors, reducing the probability of a panic of the same scale.

The signs, then, add up to no major commission initiatives until at least 2020, when Dombrovskis’s successor has his or her feet under the desk.

Fintech Regulation in 2018