By KELVIN CHAN
AP Business Writer
LONDON (AP) — Europe prepared to lead the world in regulating the freewheeling cryptocurrency industry at a time when prices have plunged, wiping out fortunes, fueling skepticism and sparking calls for tighter scrutiny.
The European Union took a first step late Wednesday by agreeing on new rules subjecting cryptocurrency transfers to the same money-laundering rules as traditional banking transfers.
A much bigger move was expected as EU negotiators hammer out the final details late Thursday on a separate deal for a sweeping package of crypto regulations for the bloc’s 27 nations, known as Markets in Crypto Assets, or MiCA.
The EU rules are “really the first comprehensive piece of crypto regulation in the world,” said Patrick Hansen, crypto venture adviser at Presight Capital, a venture capital firm.
“I think there will be a lot of jurisdictions that will look closely into how the EU has dealt with it since the EU is first here,” Hansen said.
He expected authorities in other places, especially smaller countries that don’t have the resources to draw up their own rules from scratch, to adopt ones similar to the EU’s, though “they might change a few details.”
Under the Markets in Crypto Assets regulations, exchanges, brokers and other crypto companies face strict rules aimed at protecting consumers.
Companies issuing or trading crypto assets such as stablecoins — which are usually tied to the dollar or a commodity like gold that make them less volatile than normal cryptocurrencies — face tough transparency requirements requiring them to provide detailed information on the risks, costs and charges that consumers face.
Providers of bitcoin-related services would fall under the regulations, but not bitcoin itself, the world’s most popular cryptocurrency that has lost more than 70% of its value from its November peak.
The European rules are aimed at maintaining financial stability — a growing concern for regulators amid a string of recent crypto-related crashes. The stablecoin TerraUSD imploded last month, erasing an estimated $40 billion in investor funds with little or no accountability.
The meltdowns have spurred calls for regulation, with other major jurisdictions still drawing up their strategies. In the U.S., President Joe Biden issued an executive order in March on government oversight of cryptocurrency, including studying the impact on financial stability and national security.
Last month, California became the first state to formally begin examining how to broadly adapt to cryptocurrency, with plans to work with the federal government on crafting regulations.
The U.K. also has unveiled plans to regulate some cryptocurrencies.
A few European countries, like Germany, already have basic crypto regulations. One of the EU’s goals is bringing rules in line across the bloc, so that a crypto company based in one country would be able to offer services in other member states.
The EU rules, which would still need final approval and are expected to take effect by 2024, include measures to prevent market manipulation, money laundering, terrorist financing and other criminal activities.
On Wednesday, EU negotiators signed a provisional agreement for the bloc’s first rules on tracing transfers of crypto assets like bitcoin, which is aimed at clamping down on illicit transfers and blocking suspicious transactions.
When a crypto asset changes hands, information on both the source and the beneficiary would have to be stored on both sides of the transfer, according to the new rules. Crypto companies would have to hand this information over to authorities investigating criminal activity such as money laundering or terrorist financing.
“For too long, crypto-assets have been under the radar of our law enforcement authorities,” one of the lead EU lawmakers negotiating the rules, Assita Kanko, said in a statement. “It will be much harder to misuse crypto-assets and innocent traders and investors will be better protected.”
The EU institutions are working out the technical details before the crypto tracing rules receive final approval.
Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.