On Thursday, September 24, 2020, the European Commission unveiled a proposal on crypto regulation within the EU. The proposed rules could prove to be a major obstacle to the creation of coins such as Facebook Libra.
Regulatory Opposition to Crypto
The crypto sector has grown huge since the launch of Bitcoin in January 2009. However, regulators, banks, members of the public have been wary of the technology. Pressure has been on the European Commission to take action on the crypto sector. The proposed rules are meant to regulate developments within the sector and nurturing its development.
According to Valdis Dombrovskis, the European Commission executive VP, the EU should proactively embrace the digital transformation while mitigating any risks. The proposed rules cover a wide range of crypto assets. Once ratified, they could help to reassure investors and accelerate the development of the sector.
Those who support crypto believe that they will disrupt the financial sector. They believe crypto will cut staff and other administrative costs in the current financial industry. Central banks and major banks are already researching how they can launch their own versions of crypto coins. However, research is still in the early phases.
Tougher Rule for Facebook Libra
Dombrovskis added that potentially global currencies such as Facebook Libra would face tougher rules since they pose a unique challenge to financial stability. Facebook Libra was unveiled in 2019 and the project has since faced a lot of opposition for regulators globally.
On its part, Facebook has claimed that Libra is a way to lower costs for consumers globally by eliminating the high costs of transactions during cross-border transactions. However, many governments have insisted that any digital currency has to be carefully supervised and it has to be backed by the EURO or other EU currency.
In the proposed rules, major digital currencies such as Libra would be under the direct supervision of the European Banking Authority. The commission also revealed that it plans to regulate payment systems more closely, an issue that gained prominence after the recent Wirecard scandal.
These proposals will be negotiated with the European Parliament and member states. They could become law within a few months.