The European Parliament has published a study identifying a number of legal blind spots regarding the supervision of crypto assets in the European Union.
The report identifies stablecoins, token-based fundraising and the threat of money laundering from crypto mining among recent developments in the industry that require a regulatory response.
The report states that cryptocurrency mining can be used by criminal organizations as a vehicle for “creating clean money”:
Newly mined coins are by definition ‘clean’, so if someone (e.g. a bank) is willing to convert them into fiat currency or other crypto assets, the resulting funds are also clean. A first regulatory step could be to try to map the use of this technique and then, if it turns out to be an important blind spot, to consider appropriate countermeasures. “
Several other blind spots are identified in current regulations, including guidelines for crypto-to-crypto exchanges and financial service providers engaged in token sales.
Parliament also recommends that the legal definition of cryptocurrencies be expanded to include tokens to tackle illegal fundraising activities.
To counter new money laundering risks from crypto assets, EU legislators recommend establishing a regional anti-money laundering (AML) and combating terrorist financing (CFT).
Parliament emphasized that a European AML watchdog would only be effective if it were staffed with “highly trained IT personnel capable of analyzing the risks of AML / CFT that new technologies bring.”
The report notes that there are many stablecoins in circulation, most of which are described as having a “local footprint”. However, Parliament notes that the emergence of global stablecoins such as Facebook’s Libra poses unique challenges for lawmakers.
The report describes global stablecoins as “built on top of existing, large and / or cross-border user bases,” and warns that they “have the potential to scale very quickly to achieve a global or other substantial footprint.”
Parliament’s concerns are in line with the observations of economist John Vaz, who recently said that “Libra begins with a very large” domain opportunity “more than any other cryptocurrency, adding:
“They’re targeting a market that’s ready for them – people are already doing transactions through Facebook, Messenger, WhatsApp and Instagram. They have messaging and those people are already making economic transactions with fiat. “
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