The Chairman of the European banking authority (EBA) spoke out against excessive regulation of the cryptocurrency sector and warned that such actions may hinder financial innovation. Outlining the position of the EBA in relation to the oversight of the Finance industry, Andrea Enria (Andrea Enria) has said that regulators need to maintain a «balanced approach». Next week, the EBA will publish a plan which will determine the priorities for the next two years.
Speaking at the Copenhagen business school on Friday, the head of the EBA said that cryptocurrencies should not be governed by the rules that apply to traditional financial system.
«Representatives of Central banks repeatedly claimed that cryptocurrency is not provided by the state and cannot perform the functions of money is to be a monetary unit, medium of exchange and store of value,» said Andrea Enria, recognizing that the price fluctuations of the cryptocurrency, seems to confirm this view. «However, I have yet to verify that this is a fairly strong argument for full regulation of cryptocurrencies».
The EBA Chairperson noted that the cryptocurrency can be used for payments, including international, thanks to its innovative mechanism technology of the distributed registry.
Enria says that political debate on technological and financial innovations are often reduced to two opposite approaches: «to regulate and limit», which greatly hinders the work of innovative companies, and «not to interfere» — approach, which is based on the belief that a dynamic financial sector needs freedom to innovate. In his view, both strategies of regulation has failed, and the first of them ineffective in open markets, and the second increases the risks in the unregulated sector. The Chairman of the EBA considers that the pragmatic approach involves the implementation of specific regulatory requirements in accordance with various risks for companies, their customers, the financial sector and the entire economy.
In 2014, the organization announced plans to create a comprehensive regulation for cryptocurrencies, noting that it will require many years and a strategy based on the particulars. This approach was focused on the implementation of obligations under the comprehensive screening of clients, warning consumers that their cryptocurrency investments are not protected and enforced for regulated financial institutions for the purchase, storage or sale of cryptocurrency. The EBA also proposed to divide banks and cryptooperation to avoid «contamination».
A balanced approach
Andrea Enria believes that certain functions, such as the provision of liquidity in crisis situations and loans should be available only to banks and should be «enhanced regulation and supervision». At the same time, other services such as payments and issue electronic money may be provided through other intermediaries. «These services are not associated with the main functions of banks», — says the head of the EBA.
The cryptocurrency sector is changing rapidly and it is difficult to regulate and control. Government should constantly review the rules, but they also need to maintain a measured approach, he added. Small innovative startups are unable to sustain the burden of requirements imposed on banks, warned Enria and said:
«Over-expansion of regulation, which will make FINTECH companies to comply with the rules for banks just because they compete with them in some segment of the market is likely to be a suboptimal solution.»
The Chairman of the EBA is convinced that such step will provoke the risk of «restraining financial innovation.» It stands for «proportional to» and «less intense» approach in comparison with the rules applied to banks, citing «a lower potential systemic risk» of the cryptocurrency sector:
«In these business areas we can allow innovators to experiment with new products and business practices», he said.
However, Enria noted that regulators should never allow de facto banks to make deposits and lending without stringent regulatory requirements and effective supervision. Any financial firm that does, should be regulated and supervised as the Bank, he insists.
An informed choice
Andrea Enria said that, first and foremost, regulators must understand how new products and business methods fit into current regulatory framework. He added that a deliberate choice, which consists in the rejection of the strict regulation of cryptocurrencies, can lead to a more Mature and productive dialogue between innovative firms and the authorities.
According to the head of the EBA, the discussion on regulation of innovation, often «riddled with prejudices and over-simplifications». In his opinion, should follow a «proportionate, technologically neutral approach» to the regulation, while avoiding extremes. This can be accomplished by monitoring existing regulations and creation of regulatory sandboxing. For observers of the market, the EBA intends to create a «knowledge hub» to promote a stance of technological neutrality in the development of standards.
Andrea Enria supported calls for a unified regulatory approach on the European market. This would ensure that organisations across the EU will get equal opportunities.
«FINTECH companies need to be able to offer services in the Single market, providing them to all citizens of the EU», — said the Chairman of the EBA.
He noted that competition in the FINTECH space progresses around the world and warned that European companies will have to overcome unnecessary obstacles, if each country will have its own regulation. Existing changes can lead to «regulatory arbitrage» or risks in the field of consumer protection.
Still, EU officials are famous for its contradictory statements concerning bitcoin and cryptocurrencies, while unanimously expressing the benefits of the blockchain. In recent months, the European Commission did
contradictory statements concerning bitcoin and cryptocurrencies. Will the statement of Anria another drop in the sea of regulatory disputes or contributes to the creation of a comprehensive regulation of the cryptocurrency industry, which will help its development, only time will tell. However, given the serious attitude of the head of the EBA, it is likely that the details will be announced in the near future.