Leaders in Europe seem to have finally come to an agreement that the innovative technology underlying cryptocurrencies have the potential to improve efficiency and inclusiveness of the financial system and economy more broadly but this is yet to be implemented. During G20 summit this agreement could not be passed as there is no one voice regarding the issue when it comes to Europe.
Government organizations, politicians, regulators, and central banks that were present at the gathering discussed the instability of cryptocurrency markets and the potential for criminal activity. But the major developments to come from the summit were the characterization of crypto-holdings as property for tax purposes.
Most nations initially understated the potential of Bitcoin and allowed cryptocurrency activity with little resistance, but now governments are taking a second look at how cryptocurrency and Blockchain tech will affect future labour markets, digital infrastructure, and financial institutions. Many countries are moving to regulate and restrict cryptocurrency use, but Europe financial actors are also leading the research and development of Blockchain tech in preparation for institutional and mainstream adoption of virtual marketplaces.
The vice president of the Europe Commission recently urged EU countries to be politically and financially supportive of developing Blockchain tech because Europe is best positioned to play a leading role. The Commission proposed a 23-point action plan to integrate the development of Blockchain with the financial sector around the same time it proposed two new digital tax rules. The Europe Central Bank has experimented with the potential use of distributed ledger technology as a securities settlement mechanism since December 2016. Switzerland and Netherlands based financial groups have since successfully used R3’s Corda platform to transfer nearly $30 bln into securities, proving its commercial utility.
The UK Treasury established a cryptocurrency task force in March that aims to mirror the regulatory action of the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The task force, which comprises the Bank of England and the Financial Conduct Authority (FCA), is part of a larger strategy to facilitate crypto markets in the UK, especially as the country exits the EU.
The FCA also created a global fintech sandbox in March, which aims to promote collaborative fintech regulations and initiatives among global leaders.
Mike Carney, governor of the Bank of England, is a vocal critic of cryptocurrencies in England but says banning exchanges is not the best approach. Rather, placing regulations and standards in the market is the most effective way to protect financial institutions. Similarly, other financial actors in Britain are focusing their attention on the development of distributed ledger technology (DLT) instead of mainstream cryptocurrency adoption.
Ireland established its own cryptocurrency, Irishcoin, in 2014, which aims to promote tourism in the country. Ireland’s Сentral Bank hasn’t presented any regulations for the market except that cryptocurrency dealings are subject to taxation as stocks and bonds under the country’s tax code.
The status of Cryptocurrency market in various countries of Europe:
Russia’s part in Europe:
The Russian Ministry of Finance first proposed a digital assets regulation bill in January, which would establish regulatory procedures for the market and lend legal status to cryptocurrency.
But in more recent events, a group of Russian deputies headed by the chairman of the State Duma Committee on Financial Markets submitted a bill on March 20 that establishes a regulatory framework for cryptocurrencies and initial coin offering (ICOs).
In line with the security concerns of other nations, the bill redefines virtual currency as financial assets and only allows trading on authorized exchanges. The bill also requires compliance with the Anti-Money Laundering (AML), Know Your Customer (KYC), and Counter-Terrorist Financing laws. The Russian government’s approach contrasts the Central Bank of Russia’s desire to ban ICOs and crowdfunding altogether. The government has a critical hold on the cryptocurrency industry in Russia.
The Bank of France, Europe proposed a ban on investment companies in March to keep financial institutions from involvement in the cryptocurrency market until proper regulations are enacted. The bank issued a report that characterized virtual exchanges as invitations for money laundering, cyber attacks, and criminal enterprises. In an unexpected move, French financial market regulators announced a proposal for legislation outlining rules for ICOs in March. The favourable proposal is seen to encourage the use of ICOs as legitimate investment opportunities.
The promising cryptocurrency industry in Finland, Europe is being threatened by banks that refuse to conduct business with the country’s largest virtual wallet service provider, Prasos Oy. Finnish banks are blocking transactions from major crypto-exchanges after rapid increases in transaction volume have left them concerned about their ability to determine the origins of funds and comply with AML laws due to the anonymous nature of the exchanges.
Riksbank in Sweden, Europe revealed plans to launch its own cryptocurrency, e-krona, last November. But the Bank for International Settlements (BIS) has issued a warning to central banks to reconsider the impact and unknown risks associated with the cryptocurrency market. The report issued by BIS, however, praises distributed ledger technology and emphasizes its potential for security trading among global financial institutions.
Switzerland, Europe is a global hub for the cryptocurrency industry with droves of entrepreneurs flocking to the business-friendly country every year. Four of the six biggest ICOs occurred in Switzerland, which has around 200 Blockchain companies in operation, including Ethereum.
The Polish Blockchain Technology Accelerator team operating under the Ministry of Digitalization announced the development of a national cryptocurrency, Digital PLN, in Jan. 2018. The team created a working version of the currency, but the Polish government has been slow to enact regulations that would make scalable uses of the tech feasible.
The Italian Treasury Department of the Ministry of Economy and Finance recently announced a decree that stipulates new reporting requirements for cryptocurrency service providers. The Ministry addressed legal concerns of service providers’ compliance with AML laws in a legislative decree in May 2017.
The decree requires any business or entity related to crypto operations to report activity to the Ministry of Economy and Finance. The Italian government’s call for transparency is seen as an effort to understand citizen engagement with cryptocurrency before the new industry impacts the national economy. But the growing cryptocurrency industry in Italy remains virtually unhindered by government involvement. The most recent decree does not levy taxes or regulate exchanges, and businesses increasingly accept Bitcoin as payment. Furthermore, the country’s tax authority declared that the purchases of virtual currency does not generate taxable income and is not subject to capital gains taxes.
Germany was the first country in Europe to accept Bitcoin as a currency back in 2014 and officially recognized Bitcoin as a legal tender in March. Financial leaders have since hinted at international regulations for cryptocurrencies, but the future of the industry in Germany remains in contention.
While the cryptocurrency industry in Germany awaits further instruction, many operations are continuing business as usual. A subsidiary of the country’s second-largest stock exchange announced plans to launch a cryptocurrency trading app, Bison, earlier this month. Bison will make trading with virtual currencies more accessible and is the first ever trading app to be backed by a traditional stock exchange.