The European Parliament has published a study identifying a number of legislative blind spots pertaining to crypto asset oversight in the European Union.
The report identifies stablecoins, token-based fundraising, and the threat of money laundering through crypto mining among recent industry developments necessitating a regulatory response.
Crypto mining identified as money laundering risk
The report asserts that cryptocurrency mining may be used as a vehicle by criminal organizations to “create clean cash”:
“Newly mined coins are by definition ‘clean’, so if someone (e.g., a bank) is willing to convert them into fiat currency or other crypto-assets, the resulting funds are also clean. A first regulatory step could be to try to map the use of this technique and subsequently, if it effectively proves an important blind spot, to consider appropriate countermeasures.“
Several other blind spots are identified in current regulations, including guidelines for crypto-to-crypto exchanges and financial service providers dealing in token sales.
The parliament also recommends that the legal definition of cryptocurrencies be broadened to include tokens to crack down on illicit fundraising activities.
Parliament recommends European AML watchdog
To combat new money laundering risks posed by crypto assets, EU lawmakers recommend the creation of a regional Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulator.
The parliament emphasized that a European AML watchdog would only be effective if it is staffed with “highly trained IT personnel capable of analyzing the AML/CFT risks new technologies bring.”
Global stablecoins pose new challenges for regulators
The report notes that many stablecoins are in circulation, most of which are described as having a “local footprint.” However, the parliament notes that the emergence of global stablecoins like Facebook’s Libra poses unique challenges to lawmakers.
The report describes global stablecoins as being “built on top of existing, large and/or cross-border user bases,” warning that they “have the potential to scale very quickly to achieve a global or other substantial footprint.”
The parliament’s concerns echo the observations of economist John Vaz, who recently told CryptoNewspeople that “Libra starts with a very large ‘domain possibility,’ more than any other cryptocurrency,” adding:
“They are targeting a market that is ready-made for them — people are already doing transactions over Facebook, and Messenger, and WhatsApp, and Instagram. They’ve got the message traffic, and those people are making economic transactions already using fiat.”