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New cryptocurrency rules: What startups need to know

Wild west no more? A guide to the European countries toughening up on the growing sector

By Éanna Kelly

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The march of cryptocurrency — a lightly regulated industry that’s been tainted by fraud, money laundering and hacks — has often felt like a complete free-for-all. 

But after years of scant attention from regulators, authorities in Europe are slowly taking steps to rein in the sector. 

Approaches so far range from clampdowns on crypto ads in the UK and Spain and tighter background checks in Estonia to a largely hands-off system in Switzerland and Malta.  

To crypto diehards, bitcoin, ethereum and other coins are the ultimate store of value. To sceptics, crypto is a bubble asset that may one day crash and see investors lose all their money.

Regulators who fear the latter want to crack down on the more dubious crypto companies that are heavily investing in advertising and promotion online, at football grounds and on public transport. Proposed EU-wide rules for the sector — which would make it easier to trace crypto payments and prevent money laundering — are under development in Brussels. 

Until they arrive, here’s the state of the crypto world on the continent:

The crypto-cautious 

Estonia 

The Baltic nation has been on a crypto rollercoaster. It was one of the first countries in Europe to grant crypto licences, attracting a surge of initial interest. It has since revoked almost 2,000 of these and only around 400 licensed companies remain. 

Estonia’s tougher stance on crypto was influenced by allegations that billions of euros of dirty cash flowed through the Estonia-based bank branch of Denmark-based Danske Bank from 2007 to 2015, in what was then Europe’s biggest ever illicit money scandal. The country’s new anti-money laundering chief last year said the country should start over on crypto.

Little surprise then that lawmakers are debating rules that would firm up the sector: with due diligence, audits and higher levels of capital required for crypto companies on the agenda. The finance ministry had to move fast to quell fears that the new rules would outlaw crypto wallets. “Estonia has no plans to make owning cryptocurrencies illegal,” the minister said in a statement.

Spain

There is no specific cryptocurrency regulation in Spain, but the country announced in January that it is imposing restrictions on social media influencers’ crypto promotion. New rules will require influencers and their sponsors to pre-notify a stock market supervisor of some posts and to warn of crypto’s risks or face fines. Fines for non-compliance could reach €300k. The Spanish watchdog has previously clashed with former footballer Andrés Iniesta over his paid promotion of crypto exchange Binance, when the commission told the World Cup winner it was his responsibility to inform followers of crypto’s risks. 

EU 

EU lawmakers want to make crypto more traceable. Companies that transfer crypto assets will have to collect details of senders and recipients to help authorities crack down on dirty money, EU policymakers propose in a bill dubbed MiCA. Providing anonymous crypto wallets will also be outlawed, just as anonymous bank accounts are already banned under EU anti-money laundering rules. 

The crypto law, which could take several years to come into force, would eventually apply to the 27 EU states. As such, once a crypto company is licensed in an EU member state, under MiCA it would become “passportable,” meaning it could set up in another EU nation without having to obtain approval or additional licences from the local government. Compliance, however, won’t be cheap — one-off costs for crypto firms could go as high as €16.5m, according to an impact assessment by EU officials. Costs in this ballpark “could prove insurmountable” for startups, warns Patrick Hansen, head of blockchain at Bitkom, a German digital industry association.

The UK

The country has rode the digital currency wave with the best of them. Now, like Spain, it’s beginning to exercise caution with new rules announced last month that will require the majority of crypto adverts to receive prior approval from a company authorised by the Financial Conduct Authority. In this way, the UK will start to hold crypto to the same standards as financial promotions for stocks and insurance products, with possible fines for serious breaches. 

Sweden

One of the more advanced countries in its efforts to develop a central bank digital currency, Sweden is driven by a fear of cryptocurrencies filling the void when/if cash disappears as a payment form. Riksbank, the world’s oldest central bank, is probing options including a digital register-based e-krona (the bank’s governor is highly sceptical of bitcoin, comparing it to “trading stamps”). Aside from pushing ahead on a digital currency, officials in the country have also called for a European ban on energy-intensive bitcoin mining. 

The crypto-chummy

Switzerland

Europe’s cryptocurrency boomtown is pulling the centre of the crypto-trading world into its alpine valleys. While others think about curtailing the sector, the Swiss are keen to promote it and gain a prominent position in crypto fintech. There’s so-called crypto valley in the canton of Zug (home, already, to over 1,000 crypto companies, according to Swiss investor CV VC).

Swiss regulators have moved faster than most of their counterparts around the world, creating a completely new crypto legal regime last year, which recognised “tokenised securities” on a blockchain as having the same legal standing as traditional assets. The local regulator, Finma, has given its blessing to a handful of crypto securities firms so far, among them two crypto banks (Seba and Sygnum). There are various other types of crypto licence on offer in the country; obtaining any of these can take as long as one year. 

Malta

Led by a government keen to push a vision of “Blockchain Island”, the EU’s tiniest member is regarded as a friendly jurisdiction for the sector, with an open-arms regulatory stance on digital currencies and blockchain technology. Maybe too open: international regulators are reportedly concerned that the country is a destination for laundered crypto money (the government insists its regulatory oversight is “very rigorous”).  

Lithuania

This other tiny European state and unlikely cryptoverse has made itself a popular centre for digital coin trading and blockchain fans over the past few years. A famously low initial capital requirement (€1m) and fast licence issuance for fintechs have seen over 200 flock to the country. The central bank has even issued the world’s “first crypto coin for collectors” — a one-off token dedicated to the Baltic nation’s 1918 declaration of independence. But while the country has worked hard to make itself amenable to new finance, it has drawn criticism too — not least from Germany, after the FT reported that a Vilnius-based fintech was used to steal more than €100m from now-insolvent payments firm Wirecard.

This one Belgian MP 

Following the lead of several US mayors, Belgian MP Christophe De Beukelaer is apparently the first European politician to request his salary in bitcoin. Belgian authorities, meanwhile, have been cautious from the outset on crypto: in 2018, the government backed a website entitled “Too Good to Be True” which warned investors about the signs of potential fraud. The country’s business folk are cautious too: “The success of virtual currency companies in Belgium is very relative compared to other jurisdictions such as Switzerland or Germany,” according to one analysis

Eanna Kelly is a contributing editor at Sifted. He tweets from @EannaKelly1

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