WEBVTT - What Are the UK and EU Doing About Crypto Regulation?

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg Ihart podcast, and

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<v Speaker 1>I'm Philip Bloggercrunsler, Senior editor for Bloomberg News. In for

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<v Speaker 1>Stacy Marie Ishmael. It is Tuesday, March seventh. Over the

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<v Speaker 1>past few weeks, we have seen US regulators, both in

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<v Speaker 1>federal and state levels, in some cases take aim at

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<v Speaker 1>crypto companies with accusations of fraud and unregistered securities offerings.

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<v Speaker 1>These moves send shockwaves through the digital asset industry, and

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<v Speaker 1>the new regulations have raised concerns about potential overregulation or

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<v Speaker 1>overstepping in the US, with some referring to the actions

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<v Speaker 1>as a regulatory carpet bombing moment. By contrast, on the

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<v Speaker 1>other side of the Atlantic, the UK and EU are

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<v Speaker 1>taking a slightly different approach. The UK Treasury has recently

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<v Speaker 1>proposed new rules for crypto related businesses aimed at stepping

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<v Speaker 1>up transparency and consumer protection. Meanwhile, the planned EU Markets

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<v Speaker 1>in Crypto Assets or MICA regulations seeks to provide a

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<v Speaker 1>clear legal framework for digital assets across all member states.

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<v Speaker 1>Here we meet today to discuss all of this. Is

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<v Speaker 1>Bloomberg Crypto reporter Emily Nicole. Emily I want to start

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<v Speaker 1>out by talking about the US, because there's been quite

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<v Speaker 1>a lot happening there over the last couple of weeks,

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<v Speaker 1>especially on the or uniquely, I guess we could say,

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<v Speaker 1>on the enforcement front. Could you talk us through the

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<v Speaker 1>main things that have hit in the US over the

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<v Speaker 1>last couple of days and weeks. It's really been a

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<v Speaker 1>bit of a departure for the US in terms of

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<v Speaker 1>what the global consensus was for how bodies wanted to

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<v Speaker 1>regulate crypto. So most countries have been working towards a

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<v Speaker 1>general framework that they might be able to put around

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<v Speaker 1>crypto businesses one day, and politicians have been working towards

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<v Speaker 1>passing legislation to that effect. Each country doing their own thing,

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<v Speaker 1>but everybody trying to be a little bit joined up.

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<v Speaker 1>In the US, however, there's been a bit of a

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<v Speaker 1>political stalemate over crypto, and obviously they have their own

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<v Speaker 1>stalemates still with just in politics in general, it's a

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<v Speaker 1>very divided country. But that is meant that not much

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<v Speaker 1>has been moving on the framework or the regulation front,

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<v Speaker 1>except crypto doesn't slow down. Crypto doesn't stop. Companies are

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<v Speaker 1>still going bust for aud is still happening, and so

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<v Speaker 1>the Securities and Exchange Commission has taken it upon itself

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<v Speaker 1>to continue with a spate of enforcements. So that's been

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<v Speaker 1>several settlements that they've signed with crypto exchanges and other

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<v Speaker 1>companies trying to also make a bit of a mark

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<v Speaker 1>in terms of how they think crypto should be categorized.

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<v Speaker 1>And that's created a bit of an unwelcome environment for

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<v Speaker 1>crypto in the US, at least from the company's perspective,

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<v Speaker 1>and also put the US on a bit of a

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<v Speaker 1>different trajectory compared to other nations. So you mentioned this

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<v Speaker 1>like interesting juxtaposition between how quickly crypto moves and how

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<v Speaker 1>slowly legislation moves putting in place frameworks as we know

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<v Speaker 1>with micaphrases. Could you argue that in a way, it's

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<v Speaker 1>logical that we're seeing the SEC and the regulators kind

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<v Speaker 1>of move first, given what happened up to and including

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<v Speaker 1>FTX last year. So the SEC's thinking here is that

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<v Speaker 1>something has to happen around crypto, like it can't be

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<v Speaker 1>allowed to just continue to operate at well. Companies need

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<v Speaker 1>some level of guidance, even if it's just to say

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<v Speaker 1>this is what not to do, and so that's why

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<v Speaker 1>it's been taking action. It's been saying, you know, you

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<v Speaker 1>can't be offering stay services if you're not making your

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<v Speaker 1>terms clear to users. You can't be operating coins that

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<v Speaker 1>we may consider security if you don't have the relevant permissions.

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<v Speaker 1>The only problem is is that the crypto industry doesn't

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<v Speaker 1>quite understand the SEC's thinking on all of these topics,

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<v Speaker 1>because again, without frameworks, is not particularly clear, and they

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<v Speaker 1>often disagree as to whether or not those actions were warranted,

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<v Speaker 1>were sufficiently justified. And that's what's creating the uneven dichotomy

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<v Speaker 1>in the US. Okay, I want to put a bookmark there,

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<v Speaker 1>and I want to move over the Atlantic, move across

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<v Speaker 1>the Atlantic and talk a little bit about what's going

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<v Speaker 1>on the UK side, because the UK government has made

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<v Speaker 1>some moves earlier this year, what has been going on

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<v Speaker 1>there Earlier this year, in the start of February, the

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<v Speaker 1>UK Treasury announced what its plan would be to regulate

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<v Speaker 1>the broader cryptosphere. So last year the UK said going

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<v Speaker 1>to be talking more about stable coins, We're going to

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<v Speaker 1>be talking more about how crypto envelops itself into regular

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<v Speaker 1>payment systems. We've spoken about this on the podcast before.

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<v Speaker 1>It's it's a bit of the crypto industry which looks

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<v Speaker 1>most like traditional finances. So it's the easiest for regulators

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<v Speaker 1>to understand. Now what we're seeing are the rules for

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<v Speaker 1>what could be the rest of crypto. So how crypto

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<v Speaker 1>companies should try and register with proper licensing, you know,

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<v Speaker 1>what they should be doing in terms of market abuse,

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<v Speaker 1>how they should be segregating different activities under different units

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<v Speaker 1>to look a little bit more like what we see

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<v Speaker 1>in traditional finance. And those are the rules that the

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<v Speaker 1>UK came out with in February. There are some more

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<v Speaker 1>considerations to have. These are still just proposals. We've got

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<v Speaker 1>to have you consultation and feedback and then it all

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<v Speaker 1>goes to the regulator and they have to have their

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<v Speaker 1>say and then eventually we get to the point of legislation.

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<v Speaker 1>But this was like the first big step for the

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<v Speaker 1>UK on crypto rules. The UK is an interesting one

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<v Speaker 1>because at around this time last year there was a

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<v Speaker 1>lot of sort of simmering discontent in the crypto industry

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<v Speaker 1>that UK was falling behind and you know, UK needed

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<v Speaker 1>to catch up to places like Paul, including the US,

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<v Speaker 1>and it was in a crypto friendly destination. And then

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<v Speaker 1>you had the Boris Johnson, Rishi Sunak wanting to become

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<v Speaker 1>a you know, market themselves as do orth the UK

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<v Speaker 1>as a crypto friendly hub. And then you had the

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<v Speaker 1>political turmoil of the summer and early fall where Johnson fell.

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<v Speaker 1>Boris Johnson has resigned as British Prime Minister, Liz Trust

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<v Speaker 1>has quit as Prime minister. We are going to have

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<v Speaker 1>Raschi Sunac as our next prime minister. It's a prime

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<v Speaker 1>minister that comes without a democratic elect There was a

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<v Speaker 1>lot of hope, I guess you could say among some

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<v Speaker 1>crypto firms that something was going to shake out here.

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<v Speaker 1>What is your best sense of where we stand now

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<v Speaker 1>from the industry's point of view, Are they still just

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<v Speaker 1>waiting the wings or are they becoming more optimistic? Definitely

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<v Speaker 1>becoming more optimistic, but also still waiting in the wing.

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<v Speaker 1>It's what a perfect journalist danser. So there is definitely

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<v Speaker 1>cause for optimism. The government has given clear indications about

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<v Speaker 1>what it thinks on crypto and even some clear indications

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<v Speaker 1>of what the rules could be. Obviously, you know, consultation

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<v Speaker 1>could still happen, things could feels change, but largely that

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<v Speaker 1>that is the statest quote the crypto companies will now

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<v Speaker 1>be aiming for, and ultimately what you hear from crypto

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<v Speaker 1>companies is that regulatory clarity is the be all and

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<v Speaker 1>end all. They just want to know what's going on,

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<v Speaker 1>even if it's stricter rules, and so the UK is

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<v Speaker 1>looking very appealing from that front. Also because of the

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<v Speaker 1>general sentiment that was expressed by the UK last year

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<v Speaker 1>it wanted to become a global crypto hub, and that

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<v Speaker 1>made companies think more about setting up shop in London,

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<v Speaker 1>investing here as a European base. So far though, that

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<v Speaker 1>hasn't really led to much on the ground. We haven't

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<v Speaker 1>seen a whole lot of expansion in terms of, you know,

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<v Speaker 1>more startup being founded here, more investment happening here. There

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<v Speaker 1>has been a little bit of like staff expansion from

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<v Speaker 1>the existing crypto companies that already had bases here, like

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<v Speaker 1>coin based Gemini Kraken, but for the most part, we're

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<v Speaker 1>still kind of waiting to see what the outcomes will

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<v Speaker 1>be and I think it'll it'll be another year or

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<v Speaker 1>so before any of that even comes to fruition. Yeah,

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<v Speaker 1>and it's worth pointing out that it's been a pretty

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<v Speaker 1>long crypto winter now and everything from funding has been

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<v Speaker 1>restricted I guess it's natural for it to take a

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<v Speaker 1>little bit of time for this to shake out, given

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<v Speaker 1>where the industry has been of the last twelve to

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<v Speaker 1>fifteen months. Yeah, and actually we're already seeing what could

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<v Speaker 1>be the eventual outcome for the UK happening in Europe,

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<v Speaker 1>where let lawmakers have been working on their version of

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<v Speaker 1>crypto legislation for at least two three years at this point.

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<v Speaker 1>As you called it earlier, MICA is the directive and

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<v Speaker 1>that is now close to being signed in the coming year.

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<v Speaker 1>And so we've even been seeing funding in Europe increase

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<v Speaker 1>quite a lot from what it used to be, more

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<v Speaker 1>than doubled in the last year, year on year for

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<v Speaker 1>the quarter that's just gone. So crypto investment is definitely

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<v Speaker 1>happening in Europe where it's declining elsewhere. Coming up more

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<v Speaker 1>with Bloomberg reporter Emily Nicole on the UK and EU

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<v Speaker 1>crypto regulations, we'll be right back. So I want to

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<v Speaker 1>come back to Mike and a little bit, but first

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<v Speaker 1>I just want to do a little stop at something

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<v Speaker 1>that you and I have discussed before, but an area

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<v Speaker 1>where there has been I guess we could call it

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<v Speaker 1>a crypto adjacent area where there's been some action lately,

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<v Speaker 1>and that's digital pound, or Britcoin as it's now being

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<v Speaker 1>called in some circles. Can you just give us the

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<v Speaker 1>potted version of what's going on there? Yeah, so if

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<v Speaker 1>you listen back to the episode that Philan I did

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<v Speaker 1>on this not that long ago, then you'll be fully

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<v Speaker 1>aware of this synopsis. But all central banks around the

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<v Speaker 1>world generally and now considering what they might do in

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<v Speaker 1>the world of digital currency, is a digital version of

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<v Speaker 1>the government sterling. This is a little bit like a

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<v Speaker 1>stable coin, you know. It would be tied to the

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<v Speaker 1>value of the UK's case, the pound. It will be

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<v Speaker 1>worth one to one, but instead of being issued by

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<v Speaker 1>a private company, will be issued by the central bank itself,

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<v Speaker 1>in this case the Bank of England. The hope is

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<v Speaker 1>that retail users will be able to use inital pound

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<v Speaker 1>for everything from you know, getting paid to paying your mortgage,

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<v Speaker 1>and there may also be a wholesale version up to

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<v Speaker 1>be used for between settlements between banks and between big companies.

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<v Speaker 1>But there's still a long way to go. The UK

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<v Speaker 1>has been investigating this for quite a few years now

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<v Speaker 1>and there's obviously a lot more work to be done still.

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<v Speaker 1>On you know who builds technology, who the partners are,

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<v Speaker 1>who issues the wallets that could hold digital pounds. But

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<v Speaker 1>every time we hear from the Bank of England, it's

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<v Speaker 1>more and more likely that this will be a reality

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<v Speaker 1>and you know, within a few years we will have

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<v Speaker 1>a digital pound in our wallets. Okay, So now that

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<v Speaker 1>we're talking about things that are you know, years into

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<v Speaker 1>making and still a ways out, let's discuss MICA a

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<v Speaker 1>little bit because that is a big one. We did

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<v Speaker 1>get an agreement on MICA around media last year and

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<v Speaker 1>where do we stand now. We're still waiting for the

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<v Speaker 1>final version to come out. Yeah. So MICA, the Markets

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<v Speaker 1>and Crypto Acts Directive in the EU is that is

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<v Speaker 1>the block's big crypto proposal. It should be the first

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<v Speaker 1>step towards enabling crypto companies to operate better in the space.

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<v Speaker 1>That includes rules for things like crypto licensing, so that

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<v Speaker 1>companies basically will select a block country in which to

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<v Speaker 1>register their services and then be able to passport those

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<v Speaker 1>permissions across all twenty seven member states that will have

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<v Speaker 1>lots of rules like their existing traditional finance things like

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<v Speaker 1>curbs on being able to use too many stable coins

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<v Speaker 1>in one wallet, or it'll have rules around things like

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<v Speaker 1>being able to use stable coins under a daily limit.

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<v Speaker 1>It will also seek to make sure that Europe has

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<v Speaker 1>its own kind of reach on where customers can access

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<v Speaker 1>services and try and place limits in place so that

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<v Speaker 1>customers aren't accessing things that aren't outside the block without

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<v Speaker 1>their control. But mostly it's still an initial step. Politicians

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<v Speaker 1>have said this is one of many micas to come.

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<v Speaker 1>The current set of text will be voted on in April,

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<v Speaker 1>and it's likely to come into action probably from twenty

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<v Speaker 1>twenty four onwards, although even after that crypto companies will

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<v Speaker 1>have a few years to comply. Yeah, you said many

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<v Speaker 1>micas to come, And I think that's a fairly crucial

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<v Speaker 1>point because while MICA was making its way through the

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<v Speaker 1>political machine, so much happened, and so what can we

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<v Speaker 1>expect in terms of are there areas where critics are

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<v Speaker 1>already saying, listen, we are going to have to add

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<v Speaker 1>to micare or update MICA to deal with this and

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<v Speaker 1>that particular problem or potential problem in the industry. Already

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<v Speaker 1>it's missing quite a few crucial components of what we

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<v Speaker 1>think of as the main things to regulate in crypto

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<v Speaker 1>at present. So while it has lots of rules for

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<v Speaker 1>crypto companies, it doesn't really have rules for crypto assets themselves,

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<v Speaker 1>and to be fair to the EU, that is something

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<v Speaker 1>that no regulator has really been able to get its

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<v Speaker 1>head around yet how you could regulate bitcoin or ethereum.

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<v Speaker 1>But those are things that they are now thinking about.

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<v Speaker 1>There's also no rules for decentralized finance, no rules for staking,

0:13:38.960 --> 0:13:42.640
<v Speaker 1>no rules for lending, no rules for an fts. Largely

0:13:42.640 --> 0:13:44.760
<v Speaker 1>at the minute they're considered to be exempt from all

0:13:44.760 --> 0:13:48.040
<v Speaker 1>of this, and so there are definitely going to at

0:13:48.080 --> 0:13:50.880
<v Speaker 1>least be a MICA two, if not a MICA three

0:13:50.920 --> 0:13:55.760
<v Speaker 1>and four on its way. But given that this has

0:13:55.800 --> 0:13:59.600
<v Speaker 1>taken several years already, who knows what we might get

0:13:59.600 --> 0:14:04.480
<v Speaker 1>those micas. And when it comes to stable coins, which

0:14:04.720 --> 0:14:07.360
<v Speaker 1>is a topic that we've been sort of hitting on

0:14:07.640 --> 0:14:11.120
<v Speaker 1>again and again and again ever since well last year

0:14:11.360 --> 0:14:15.320
<v Speaker 1>Terra USD debacle and even before that, what are the

0:14:15.360 --> 0:14:18.360
<v Speaker 1>issues that are being raised here? So, as I said earlier,

0:14:18.440 --> 0:14:21.800
<v Speaker 1>stable coins are the things that look most like traditional money,

0:14:21.840 --> 0:14:26.080
<v Speaker 1>traditional finances, So regulators have got the most formed rules

0:14:26.080 --> 0:14:28.840
<v Speaker 1>on those today in the UK and Europe in particular,

0:14:29.720 --> 0:14:31.600
<v Speaker 1>and that's good, right It means that there's are these

0:14:31.680 --> 0:14:34.440
<v Speaker 1>parts of crypto that are already kind of getting put

0:14:34.440 --> 0:14:37.360
<v Speaker 1>in check. The only problem is is that no regulator

0:14:37.400 --> 0:14:40.160
<v Speaker 1>has been able to say definitively that any of the

0:14:40.200 --> 0:14:42.360
<v Speaker 1>stable coins that are out there at present, be that

0:14:42.480 --> 0:14:46.880
<v Speaker 1>Tether's USDT or Circle's USDC meets the standards that they

0:14:46.920 --> 0:14:50.040
<v Speaker 1>would require for stable coin issuers. They need to have

0:14:50.160 --> 0:14:52.920
<v Speaker 1>things like proper segregation of funds, be able to show

0:14:52.960 --> 0:14:58.160
<v Speaker 1>transparency transparently, that they meet one to one requirements on

0:14:58.240 --> 0:15:01.600
<v Speaker 1>the clatteral backing those token, that they have sufficient risk

0:15:01.680 --> 0:15:05.240
<v Speaker 1>management in place, that getting full financial audits every year.

0:15:05.520 --> 0:15:08.280
<v Speaker 1>These are all things that are now like pretty standard

0:15:08.320 --> 0:15:11.240
<v Speaker 1>things to expect of companies in finance, particularly if you

0:15:11.240 --> 0:15:13.640
<v Speaker 1>would think of a company that could issue its own currency,

0:15:14.640 --> 0:15:17.360
<v Speaker 1>And those are all things that are currently nobody in

0:15:17.400 --> 0:15:21.120
<v Speaker 1>crypto is able to meet. So while we do have expectations,

0:15:21.240 --> 0:15:23.560
<v Speaker 1>clear expectations in place in the UK and Europe for

0:15:23.600 --> 0:15:27.280
<v Speaker 1>what stable coin issues will be expected to do in future,

0:15:28.000 --> 0:15:29.840
<v Speaker 1>it's still a long route is to whether or not

0:15:29.880 --> 0:15:33.440
<v Speaker 1>any of them will be considered compliant anytime soon. All right,

0:15:33.480 --> 0:15:36.400
<v Speaker 1>So this is all pretty high level stuff, But if

0:15:36.440 --> 0:15:40.120
<v Speaker 1>you're a crypto user, What does this ultimately mean for you?

0:15:40.480 --> 0:15:42.760
<v Speaker 1>If you're someone who's based in the UK and Europe,

0:15:42.760 --> 0:15:44.920
<v Speaker 1>it means that in the next few years you can

0:15:44.960 --> 0:15:48.200
<v Speaker 1>expect to have a proper regime in place. That means

0:15:48.240 --> 0:15:50.680
<v Speaker 1>that there will be crypto companies in those countries that

0:15:50.720 --> 0:15:53.360
<v Speaker 1>are regulated, that are licensed for you to go to

0:15:53.880 --> 0:15:55.720
<v Speaker 1>that you can have a little bit of faith that

0:15:56.160 --> 0:15:59.560
<v Speaker 1>at least someone who's in a form of authority has

0:15:59.640 --> 0:16:02.040
<v Speaker 1>checked that that company is doing what it says it's

0:16:02.080 --> 0:16:04.680
<v Speaker 1>doing and it's acting in the best interests of you

0:16:04.840 --> 0:16:08.640
<v Speaker 1>the user. What it doesn't mean it the minute, though,

0:16:08.720 --> 0:16:10.680
<v Speaker 1>is that there's going to be any sort of protections

0:16:10.720 --> 0:16:13.280
<v Speaker 1>for you. So while that the FCA in the UK

0:16:13.560 --> 0:16:16.400
<v Speaker 1>or some of the regulary bodies and the EU like

0:16:16.640 --> 0:16:19.880
<v Speaker 1>ESTHMA will be making checks to make sure, for example,

0:16:19.960 --> 0:16:23.160
<v Speaker 1>there's no untoward money laundering going on, or that you know,

0:16:23.200 --> 0:16:27.040
<v Speaker 1>everybody's reasonably declaring all the risks that they should, there's

0:16:27.080 --> 0:16:28.800
<v Speaker 1>not going to be things that we used to like

0:16:29.000 --> 0:16:31.800
<v Speaker 1>insurance over your holding, so if a company went bust,

0:16:31.840 --> 0:16:34.920
<v Speaker 1>you definitely get all your money back, or you know,

0:16:34.960 --> 0:16:36.880
<v Speaker 1>if you were a subject to a scan that they'd

0:16:36.880 --> 0:16:38.680
<v Speaker 1>have to pay that back to you. Those aren't things

0:16:38.720 --> 0:16:42.600
<v Speaker 1>that they're even anywhere close to promising for crypto. So

0:16:42.640 --> 0:16:44.280
<v Speaker 1>it's a little bit of a mixed bag, right. You

0:16:44.280 --> 0:16:45.920
<v Speaker 1>get a little bit more of a sense that you're

0:16:46.120 --> 0:16:48.400
<v Speaker 1>that you're dealing with somebody who knows what they're doing,

0:16:48.720 --> 0:16:51.400
<v Speaker 1>but you don't necessarily get the sense that Crypto is

0:16:51.440 --> 0:16:54.120
<v Speaker 1>going to change from being the current message, which is,

0:16:54.320 --> 0:16:56.960
<v Speaker 1>if you invest in crypto, be prepared to lose all

0:16:57.000 --> 0:17:01.760
<v Speaker 1>of your money. Thank you, Emily. That was Bloomberg reporter

0:17:02.000 --> 0:17:05.280
<v Speaker 1>Emily Nicole. You can find more of her reporting on

0:17:05.320 --> 0:17:08.840
<v Speaker 1>the Bloomberg Terminal and on Bloomberg dot com. For more,

0:17:09.119 --> 0:17:13.280
<v Speaker 1>be sure to check out our twice weekly newsletter, Bloomberg Crypto.

0:17:18.200 --> 0:17:22.160
<v Speaker 1>This is Bloomberg Crypto, a daily podcast from Bloomberg and iHeartRadio.

0:17:22.880 --> 0:17:27.120
<v Speaker 1>For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,

0:17:27.280 --> 0:17:31.199
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0:17:31.240 --> 0:17:34.360
<v Speaker 1>or suggestions for the show to Crypto at Bloomberg dot net.

0:17:37.520 --> 0:17:41.240
<v Speaker 1>The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our

0:17:41.320 --> 0:17:45.119
<v Speaker 1>senior producer is Janet Babin. Our producers are Mohammed Faroup,

0:17:45.200 --> 0:17:48.560
<v Speaker 1>and Sharon Berrio. Our associate producers are Ty Butler and

0:17:48.640 --> 0:17:52.920
<v Speaker 1>Moses on um Desta wonder At is our engineer. Original

0:17:53.000 --> 0:17:57.760
<v Speaker 1>music by Leo Sidron. I'm Stacy Mariashmal. We'll be back

0:17:57.760 --> 0:18:09.639
<v Speaker 1>tomorrow at the d