The MEP returns to the urgency of regulating this sector in Europe, going beyond the current draft regulations.
The bankruptcy of the giant FTX is causing an unprecedented upheaval in the cryptocurrency ecosystem. As US President Joe Biden calls for global regulation of cryptocurrencies following the collapse of FTX, BFM Crypto takes stock with MEP Aurore Lalucq on regulation in Europe.
BFM Crypto: The MiCa (Market in Crypto Assets) Regulation, which allows Europe to regulate cryptocurrencies, will come into force in 2024. Are you satisfied with the final version? Do you think we should go further?
Aurora Lalucq: This is a first step, but we need to go further, in particular to create a regulatory framework for NFTs. More generally, cryptos are financial assets and should be treated as such. I have always advocated its integration into existing regulatory frameworks. The current situation reinforces this conviction. Indeed, I have constantly warned of the dangers of this unregulated financing. And unfortunately, it is clear that my fears turned out to be correct.
By the time it comes into effect, can the regulation be further amended to reflect reality, especially in the context of the collapse of FTX?
The reality of the industry is the bankruptcy of FTX. It’s Voyager’s or Celsius’s, and the thousands of customers who can’t get their money back. It is the disintegration of Terra/Luna, but presented as one of the strongest stables on the market. Each time, these are escrow accounts, bank runs, Ponzi pyramids, lack of equity, market manipulation, non-compliance with best execution order… not to mention the most basic of scams. It is therefore urgent to regulate and really regulate, because the PSAN in its registration version is mainly a matter of “rule washing”. The urgency is to apply MiCA as soon as possible.
What does this regulation really change for investors?
Until now, the crypto market has failed to meet the most basic regulations of the banking and finance industry. This is an important first step in the implementation of a framework for crypto assets in Europe. It first attempts to define what crypto assets and crypto asset service providers are in order to create a single framework for these providers. There are a number of obligations in terms of best execution orderconsumer protection, the fight against market manipulation and money laundering.
The European Parliament is expected to prepare a report on NFTs this year, which will be sent to the European Commission. Are you involved in the production of this report?
I can’t tell you yet whether I will be in charge of this subject or whether it will be one of my colleagues. Crypto trolls and self-proclaimed experts seem to have made me their main target. However, the issue of crypto regulation only represents a portion of the stocks I manage on a daily basis. I also work on insurance regulation, banking prudential, accounting standards and taxation, just to name a few work topics.
Isn’t the United States smarter than Europe in anticipation of how MiCa will set itself up to refine its own regulations?
Smart? It seems to me that the legislature’s role is not to play “the smartest”. The aim should be to protect the public interest – and not defend the private interests of a few – to protect consumers and financial stability or to combat the industry’s many excesses.
Do you understand that the crypto ecosystem in France and Europe is so far more afraid of the United States than of Europe?
In particular, I understand that consumers should fear this market as it is, because it is unregulated, and only invest in it what they are really willing to lose.
Web 3 is already changing our relationship to financial products (decentralized finance that also allows lending or credit), to payments (cryptocurrencies that promote financial inclusion in certain countries, etc.) to real estate (tokens)… How do you not see the revolution going on?
The ongoing revolution? Financial inclusion? Like the one in El Salvador where almost 80% of the population thinks the state should stop investing a penny in bitcoin? Not to mention that with the collapse of Bitcoin, El Salvador is now in trouble vis-à-vis its creditors. Or in the Central African Republic, where, according to the World Bank, only 14.3% of the population has access to electricity… Two countries that really have other priorities than investment and link their fate to a highly speculative and volatile financial asset.
Let’s be a little serious, if this industry is to flourish, it has to come out with elements of language, permanent self-promotion. The gap between rhetoric and reality discredits it a little more every day… After that, there are useful applications of the blockchain, for example in the field of auditing and systematization of tax practices. But this technology is used too often to justify non-compliance with the most basic rules. Under the pretext of not restraining a nascent industry, we’ve accepted for too long that it does almost anything.
More and more US banks are offering cryptocurrency services, why do you think French banks are not following this path yet?
I think we have to be careful with the figures presented. In addition, I do not see the links between regulated and non-regulated finance very positively. If the many crypto crashes that have occurred this year have not had a dramatic impact on the rest of the financial world, it is precisely because the bridges between cryptoassets and traditional assets remain quite limited. And that is good. Otherwise, the contagion effect would have been much greater and financial stability would be at stake. Globalized finance is already part of a precarious balance that we are somehow trying to ensure through regulation and regulations. Let’s avoid adding a destabilizing factor by linking it to an even more unstable sector. As long as cryptos are not regulated, the links between crypto assets and so-called traditional finance should not be widened.
Economy Minister Bruno Le Maire wants France to become the “base camp” for cryptos and DeFi in Europe, what do you think?
That he is definitely a great visionary. Isn’t it the same Minister of Economic Affairs who didn’t know what a super profit was? Contrary to all European and international institutions and even our legislation. The government tirelessly repeats the same language: it wants to stimulate innovation without losing sight of regulation. The reality is that he only completes half of this step-by-step plan. Admittedly, the government is ogling crypto players, the president receives Binance boss. But at the same time, the regulation implemented with the PSANs is totally inadequate. Even worse, it creates the illusion of a regulated industry, which is always the best way to do nothing concrete and send consumers into the wall.
I have also written to the minister about this and pointed out that only accreditation actually sets standards in the field of transparency, good governance and consumer protection. However, no platform has been approved. Even worse, they play on this vagueness between registration and approval to mislead consumers, claiming to have the AMF label, without any serious obligation.
In April, you mentioned in our columns that you were going to work on how crypto-assets and blockchain pose new tax challenges. Have you made progress on this axis?
Clearly, work is needed to better adapt our taxation to the arrival of these assets, which are financial assets and should therefore be treated as such. There has been a certain amount of work, especially on the part of the OECD, to try to better define what they call taxable events. Simply put, when is value created and how should it be taxed. These are also the questions we in the European Parliament are asking ourselves in an effort to create a uniform framework at European level.
Last October, the European Parliament passed a resolution, for which I was a co-rapporteur, on the issue of new forms of taxation related to the blockchain and in particular the issue of crypto-asset taxation. This is of course a first step. Our goal is to keep working on this topic. That is why we have asked the European Commission to start a number of reviews regarding the tax treatment of crypto-assets within the EU, to highlight some good practices and to arrive at unified regulation on a European scale.
The giant Binance wants to help Elon Musk promote the adoption of cryptocurrencies on the social network. How do you view this initiative?
Binance and Elon Musk, it really makes you dream: the man who, according to the Bloomberg investigation, is suspected of promoting money laundering through his platform and the one who sabotages his own by blurring the lines between fake news and debate of ideas. This nevertheless raises a central question: how independent will Twitter be from Binance in such a hiccup? My gaze is that of someone attached to democracy and concerned about such an alliance.
Perhaps it would be better for Elon Musk to stop messing around with Twitter, and for Binance to apply the most basic rules of traditional finance. That would be a very interesting and innovative initiative. But let’s see how these two companies fare in a few months.