Regulation Weekly: EU Closes in on Crypto Decision; SEC’s Efforts May Backfire; Singapore Talks Tough

Crypto is increasingly taking center stage in the European Union, as talks on the Markets in Crypto Asset Regulation (MiCA) legislation are reaching their endgame.

There is a great deal of clarity on some issues, notably that the European Securities and Market Authority (ESMA) will be in charge, although it might share some stablecoin authority with the European Banking Authority (EBA).

Read more: EU Less Likely to Have Battle Over Crypto Regulator

What isn’t as clear is where the European Parliament will fall on two key questions.

The first and most important is whether anti-money laundering (AML) provisions will require senders to collect know your customer (KYC) data from unhosted — meaning private, rather than exchange account — digital wallets. Adopting this version of the “travel rule” is a big deal for a number of reasons, chief among them privacy and whether its’s feasible.

See also: Crypto Faces New Restrictive AML Rules From EU Parliament Experts Say

On the privacy front, it means anyone who wants to be involved in crypto would have to identify themselves with a great deal of private data, with attendant identity theft risks. There’s also the question of fairness and viability, as proponents want to make it required on any transfer, not just those over €1,000, as banks have to.

Beyond questions about whether it would pass muster in the courts, enforcement agencies have said the amount of work required just to collect that data from any transaction of any size would be overwhelming.

This is set to be determined, one way or another, on June 29, CoinDesk reported. Another question is whether the broader MiCA coin registration rules can and should be applied to non-fungible tokens (NFTs), and proponents of energy conservation rules that would effectively ban bitcoin are still trying to insert that language, despite previous defeats.

SEC’s Backdoor Draws Fire

That’s unlike the U.S., where there is no clarity on who will actually regulate cryptocurrencies.

It’s currently a three-way battle, largely between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), but with the Office of the Comptroller of the Currency (OCC) becoming a potential contender for stablecoin control, if the multiagency effort to present President Biden with a broad legislative framework for cryptocurrency regulation follows earlier plans to require that issuers be federally regulated and insured banks.

Related: Bill Giving CFTC Regulatory Control Would Reshape Crypto

One action on the part of the SEC had even Federal Reserve Chairman Jerome Powell uncertain. An SEC ruling that a crypto custodian must keep client assets of their own books led Powell to call out the agency in congressional testimony.

“Custody assets are off balance sheet, have always been,” Powell said. “The SEC made a different decision as it relates to digital assets.”

See also: SEC’s ‘Backdoor’ Approach to Crypto May Cost It Power

It gave ammunition to critics who accuse the SEC of regulating by enforcement.

OCC Unlikely to Let Banks Use Crypto

OCC Comptroller Michael Hsu took something of a victory lap last week pointing to the catastrophic, $48 billion failure of the TerraUSD stablecoin following a run in May as proof of the wisdom of his moves to keep banks far away from crypto.

In the banking regulator’s Semiannual Risk Prospective report, released June 23, and a subsequent press conference, Hsu said the turmoil “kind of reinforced where we’ve been this whole time.”

Read more: US Comptroller Takes a Victory Lap on Crypto

Specifically, he was speaking about a warning his office sent to banks shortly after he took over in November. In that, the agency told banks that they “must be able to demonstrate that they have appropriate risk management systems and controls in place to conduct them safely” and get pre-approval of them before using cryptocurrencies, such as making transactions in stablecoins — something encouraged by Hsu’s crypto-friendly predecessor.

Seeing as Hsu has made it fairly clear that such approval isn’t likely, most traditional federal banks have put any such interest on the back burner.

Singapore Promises Harsh Enforcement

Singapore isn’t exactly known for its easy-going approach to breaking the rules, but even so, the vow to be “brutal and unrelentingly hard” on bad behavior by Sopnendu Mohanty, chief FinTech officer at the Monetary Authority of Singapore, seemed to herald a change in attitude toward in the crypto industry after years of courting the digital asset sector, the Financial Times said on June 22.

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