The Chairman of the European Banking Authority has spoken against excessive regulation of the crypto sector, warning it might constrain financial innovation. Outlining EBA’s position in regards to the supervision of the Fintech industry, Andrea Enria said regulators need to maintain a “measured approach”. Next week EBA will publish a roadmap, which defines a series of priorities for a period of two years.
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“Regulate and Restrict” or “Let Things Happen”
Speaking at the Copenhagen Business School on Friday, the head of EBA said he was not convinced cryptocurrencies should be placed under the regulations that apply to the traditional financial system. Several central banks have argued that cryptocurrencies lack the institutional backup and cannot fulfil the functions of money – unit of account, means of exchange and reserve of value, Andrea Enria said, admitting that crypto fluctuations seem to confirm this view. “Still, I am yet to be convinced that this is sufficiently strong argument to attract cryptocurrencies under the full scope of regulation”, he stressed. The official pointed out that cryptocurrencies can be used for payments, including international, thanks to an innovative mechanism – the distributed ledger technology.
Andrea Enria
Enria remarked that the policy debate on technological and financial innovation often focuses on two opposite approaches: “regulate and restrict” – banning innovative business not fitting into the rulebook; and “let things happen” – rooted in the belief that a dynamic financial sector needs breathing space to innovate. In his opinion, both regulatory strategies have shown their limitations, with the first being ineffective in open markets, and the second one increasing risks in the unregulated sector. EBA’s chief executive believes that a pragmatic approach involves the implementation of specific regulatory requirements in accordance with the different risks for the firms, their customers, the financial sector, and the whole economy.
Back in 2014, the authority outlined a framework for comprehensive regulation of cryptocurrencies, noting that its development would require many years and a nuanced strategy. Its approach was centered on fulfilling customer due diligence obligations, warning consumers that their crypto investments are not protected, and preventing regulated financial institutions from buying, holding or selling cryptocurrencies. EBA had also proposed segregating banks and crypto operators, in order to avoid “contagion”.
Informed and Measured Approach
Andrea Enria thinks certain functions, such as providing liquidity in crisis situations and lending, should be strictly reserved for the banks and subject to “enhanced regulation and supervision”. At the same time, services, like payments and issuance of electronic money, may be provided by other intermediaries. These services are not intrinsically related to the essential functions of banks, the head of Europe’s banking authority argued.
The crypto sector is changing fast and it’s difficult to regulate and supervise, Enria admitted. Authorities have to continuously review regulations, but they also need to maintain an informed and measured approach, he added. Small innovative startups cannot sustain
