European Central Bank (ECB) official Fabio Panetta has called for a global framework for cryptocurrency regulations in an industry that he says resembles the “Wild West.”
“The current regulatory approaches differ across countries. Some countries have banned crypto-assets outright while others have restricted their use,” Panetta said.
“This situation is clearly unsatisfactory, as crypto-assets are a global phenomenon and their underlying technologies can play an important role, not only in finance. We need globally coordinated regulatory action to address issues such as the use of crypto-assets in cross-border illicit activities or their environmental footprint. Regulation should balance the risks and benefits so as not to stifle innovation that could stimulate efficiency in payments and broader applications of these technologies.”
While “progress” is being made, particularly in Europe which he says is leading the way in crypto regulation, Panetta said that it hasn’t been enough to keep up with the pace of emerging challenges, and urges that faster progress be made “on many fronts.”
The London School of Economics grad and former director-general of the Bank of Italy highlights four key areas of cryptocurrency regulation where he thinks progress should be made.
Firstly, Panetta says that crypto assets need to be held to the same standards as the rest of the financial system. Specifically, cryptocurrency should be subject to standards from the Financial Action Task Force (FATF), and be within the scope of anti-money laundering (AML) and countering the financing of terrorism (CFT) laws.
Second, the Italian economist says that authorities need to consider how crypto assets are taxed.
“Currently the tax treatment of crypto-assets is minimal: we know very little about who really owns them, and about the size and the distribution of the capital gains,” he said.
“We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market. The introduction of reporting obligations for transactions above certain thresholds, as just recently proposed by the Organisation for Economic Co-operation and Development (OECD), would enhance transparency and combat tax evasion.”
Panetta also suggests that some crypto assets could be taxed at different rates depending on their category or characteristics. For example, the ECB official says proof-of-work (POW) based assets could be taxed at a higher rate than others.
Third, Panetta says that “public disclosure and regulatory reporting” need to be enhanced, because according to the banker, current standards are “highly problematic.”
The fourth area of concern for Panetta is the transparency of operators and crypto business owners.
“…Given the crucial unanswered questions on issues such as operational risk, volatility and liquidity, regulators should introduce strict transparency requirements and set out the standards of conduct to be followed by professional operators in order to protect unexperienced retail crypto-asset investors,” he said.
A recent report from Nezpolitik suggested that behind the scenes, various officials within the European Union were becoming critical of cryptocurrency and looking at ways to enhance regulations.
For example, some officials questioned whether or not proof-of-work systems like Bitcoin really needed to exist when proof of stake chains that consume less energy already exist. They were also doubtful of claims that Bitcoin miners could be truly efficient by making use of excess energy, for example, in oil fields.
“Excess energy can be diverted to other markets. Methods of storing energy will improve. Hydrogen production can take excess energy. There is no excess energy,” one of them said.
As of yet, there is no specific or official proposal for global cryptocurrency regulation, but other organizations, such as the International Monetary Fund (IMF), have echoed Panetta’s calls for such a framework.