European Banking Authority Report on Crypto Industry Regulations
The European Banking Authority (EBA) has released a report that discusses how the cryptocurrency sector is attempting to evade regulations such as the Markets in Crypto-Assets (MiCA) and the expanded Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) laws. MiCA, which will be fully implemented by the end of 2024, aims to establish consistent rules across the 27 EU countries for crypto asset providers.
While the EBA did not name specific crypto companies, it warned that some entities might keep trying to escape regulatory oversight. Such actions could seriously threaten the integrity of the EU financial system.
One risk highlighted by the EBA is known as “forum shopping.” This occurs when companies seek regulatory approval in countries with lenient processes, enabling them to operate in other EU regions. This issue is sometimes referred to as the “passport issue.”
The report mentioned that, prior to the adoption of MiCA, an unidentified entity filed numerous registration and licensing applications across various countries in quick succession, only to later withdraw from those jurisdictions. It raised questions about the integrity of those applications, which had not been disputed. Thus, the entity has since begun operating there.
The EBA noted that many companies with weaker AML/CFT rules are managing to enter EU markets by extracting themselves from jurisdictions that have stricter supervisory practices or lower entry requirements.
MiCA had its initial rollout last year, but a transition period extends until July 1, 2026, during which businesses need to secure licenses or face being told they don’t meet the necessary standards. The regulator indicated that evidence is emerging of entities that, although not complying with MiCA and currently appealing their authorization status, continue to function within the EU.
Dr. Hendrik Müller-Lankow, a lawyer at a German virtual currency firm, believes that “supervisory arbitrage and supervisory shopping do indeed happen across the EU.” However, he also thinks that this is a situation regulators might need to accept if they want to balance their supervisory powers while fostering a single market.
Centralized Powers in the EU: A Possible Solution?
Müller-Lankow suggests the EU could potentially solve this dilemma by centralizing legislation and supervisory authorities. He noted that this process is already quite advanced, even as EU institutions are increasingly extending their control.
The report also pointed out that some crypto firms are trying to establish operations in the EU without clear beneficial ownership or governance, which may obscure accountability and ownership.
In one instance, a virtual asset service provider (VASP) applied for a license in multiple EU jurisdictions but was found by a regulatory authority to be “jointly operated by more than 20 different entities,” most of which were located outside the EU and beyond regulatory scrutiny. The EBA commented that such ambiguous structures might allow for the misuse of shell companies, with entities lacking real economic activities potentially facilitating illicit fund flows under the cover of legitimate transactions.
