29th November 2023 – (Frankfurt) Andrea Enria, Chair of the Supervisory Board at the European Central Bank (ECB), highlighted the need for crypto firms that behave like banks to be regulated accordingly, acknowledging the difficulties that lie ahead. In an interview with four European Union media outlets on Wednesday, Enria discussed the ECB’s planned digital euro and private cryptocurrencies, emphasizing that they do not pose a threat to the role of traditional banks.
However, Enria pointed out that supervising crypto companies could prove more challenging than overseeing banks due to the similarity of certain services they offer, which can closely resemble traditional banking services in the areas of payments and decentralized finance (DeFi). “And here the difficulties are serious,” Enria stated, adding that one of the main challenges lies in the deterritorialization aspect, as these entities often lack precise headquarters.
The recent $4.3 billion settlement between Binance, the world’s largest crypto exchange, and the U.S. government highlighted the fact that Binance operates globally without a headquarters. Additionally, the collapse of FTX, a multibillion-dollar enterprise in 2022, revealed a significant level of opacity within crypto firms. Enria emphasized the need for consolidation and a comprehensive understanding of the risks associated with these entities, which proved to be challenging in the case of FTX.
Supervising popular cryptocurrencies like Bitcoin (BTC), which lack a central issuer, or decentralized finance projects that lack a clear entity, further complicates regulatory oversight. Enria acknowledged that this would be a greater challenge for regulators than for traditional banks. The key focus, according to Enria, will be to ensure that any entity engaging in banking activities falls under the purview of banking regulation and supervision.
As the European Union considers legislative proposals for a digital euro, questions surrounding virtual assets and their regulation are at the forefront. The introduction of a digital euro is expected to provide competition to private cryptocurrencies as a means of payment. EU officials are carefully examining these matters in order to strike a balance between innovation and regulatory oversight in the rapidly evolving world of crypto-assets.