As new debates on cryptocurrency regulation open next week, MEP Aurore Lalucq gave an interview to BFM Crypto.
BFM Crypto: As a Member of the European Parliament’s Committee on Economic and Monetary Affairs, what do you think about the framework for cryptocurrencies at French level?
Aurora Lalucq: The supervision of cryptocurrencies – I insist on the word assets because they are financial products and not currencies – on a global level is almost non-existent. France is one of the first countries to work in this field, in particular by establishing the PSAN (Digital Asset Service Providers) scheme. Nevertheless, this is quite inadequate: Crypto players do not currently have to meet the same obligations as so-called traditional financing.
Can you give us an example?
For example, there is a lack of clarity about the framework for the famous PSANs, which may be subject to registration and / or approval. The problem is that only accreditation is truly binding and imposes real standards in terms of transparency and good governance. But it remains optional. A dual standard that makes the current certification procedure for crypto platforms unreadable and therefore ineffective. If the registration is easy to obtain, the approval is more restrictive to have. The players also play a large part in this ambiguity by explaining that they are registered with AMF, even though it has almost no consequences for them and their practice.
We have legislated at European level to bring legislation closer to accreditation. The idea was to have a set of rules that is the same for everyone and that we have a system that is close to being approved under the Mica rules (the draft European regulation “Markets in Crypto-Assets” under discussion, editor’s note. ). We want to propose solid regulation in a sector that to date has almost no obligations. For example, when a person goes to his banker, the latter must respect certain criteria, this does not always exist on the side of crypto-assets trading platforms.
What are the other components of Mica regulation?
Mica aims to better define and therefore better regulate cryptocurrencies on a European scale, because today there is little regulation and almost no supervision. We want to standardize these rules at European level in order to better protect consumers and users. Among these advances are the classification of assets and their supervision, the obligation of service providers to obtain approval, to subject their top managers to tests of competence and good reputation, the issue of equity is also addressed.
Similarly, it is a matter of applying the same standards to cryptocurrencies as those required in the banking and finance world. For example, there is no obligation in the crypto sector on market manipulations as there is in finance. Mica provides rules to avoid a number of market manipulations and scams. Another example, in traditional financing, a banker must deliver a financial product at the best price: this is not the case in the cryptocurrency sector, and Mica seeks to lay the foundation for better user protection.
Is the regulation not contrary to the philosophy of the sector that wants to be decentralized? Why apply the same rules as in the traditional sector?
Because a financial sector, decentralized or not, remains a financial sector and simply has to comply with a certain number of rules. The challenge is to bring the cryptocurrencies into normal rules that apply to the rules of banking and finance. In addition, the “anti-system” character of the cryptosphere is often used as a pretext to hide very real interests. Furthermore, when we are in a market valued at around 3,000 billion and there are more and more bridges with traditional financing, it is not up to market participants to define their own rules.
We believe that there are risks of financial instability because the cryptocurrency sector has so far been able to develop without any rules to follow. So yes, with the proliferation of regulations, products that are dangerous to the consumer risk disappearing, actors risk disappearing, as is always the case when a sector is regulated, and as has been the case in traditional finance.
Another sensitive topic about Mica concerned the debates around bitcoin mining, with the method of validating transactions “proof of work” or PoW, which is in the seeker. What position did you defend?
I am opposed to PoW for environmental reasons. In addition, many of us prefer the “proof of stake” method because we consider the “proof of work” method to be overly polluting. With Mica, there was a kind of unrest from the industry that worried about one of its flagship PoW-dependent products, bitcoin. But Mica today reminds us that PoW technology is very polluting. Subsequently, it will be urgent to assess the environmental consequences of this mining method and to draw conclusions.
Mica will enter the trilogue (trilogue negotiations within the EU between Parliament, the Council and the Commission) around mid-May, and there is a risk that the negotiations will not go in the right direction on environmental issues. On the other hand, the issue is taken very seriously by the central banks and certain regulators. It will therefore be necessary to return to these essential questions, regardless of the results of the trilogue.
What measures have you included in the TFR Directive (for “transfer of funds” intended to apply money laundering measures) as shadow rapporteur on this issue?
The anti-money laundering package, which includes the Transfer Directive, has been reopened to cover the issue of cryptocurrencies. In this context, I defended the implementation of user identification (KYC or “know your consumer”) from zero euros. Why such a threshold? Because the specificity of techno crypto makes it quick to get used in smurfing, that is, the fact of fragmenting small sums and sending them to a recipient quickly and instantly, which is not possible for a bank. It’s not about pointing fingers at cryptocurrencies, it’s about protecting people. My second request was that crypto platforms also ask for identification when performing transactions with non-hosted wallets that we know nothing about today, a kind of black hole in the crypto environment.
How will these topics be received during the TFR trilogue on April 28?
These measures are criticized by some. I hope that everyone will be responsible and that the absence of a KYC threshold will be maintained in the trilogue. On the other hand, due to pressure from the crypto industry, I doubt we will succeed in winning the case on the issue of unhosted wallets.
What did you think of the letter from the cryptocurrency industry warning of plans to regulate the sector? In particular, the sector points to the question of the threshold above which transfers of cryptocurrencies must be accompanied by information on the sources and recipients of the transfer.
With regard to the FATF (Financial Action Task Force, an intergovernmental body that brings together around forty member states and establishes international standards for money laundering and terrorist financing, ed. Note), the European directive originally proposed a threshold of 1000 euros, as did the banks. However, it was the Council which proposed a zero threshold, a proposal which I defended and which was adopted and voted on in the ECON Committee on Economic and Monetary Affairs, editor’s note) in the European Parliament. So there seems to be a majority on this point. Furthermore, European rules do not aim to kill decentralized finance, but simply to bring it back to the rule of law. Who can really be against it?
How do you view the other regulatory projects?
In the United States, there are tendencies toward rules. They could be stronger than in Europe. The IMF continues to warn about the link between traditional funding and cryptocurrencies. In the United States, the regulator and supervisor can be very tough. In Europe, we are moving much faster than the United States, and that is good. This European regulation is a very good start, it should be evaluated to see what the shortcomings are in another step. Furthermore, I think there is a guideline in the financial field: “same services, same risks, same rules”. I think we need to reopen other European directives to include the issue of cryptocurrencies.
What are your next open files?
We will soon be working on the connection between new technologies and taxation, especially on how cryptocurrencies and blockchain pose new challenges in the tax area, how blockchain can be useful in the fight against tax evasion and fraud, but also how cryptocurrencies can be used in fraud and tax evasion.