The growth in crypto - Interview with Peter Kerstens, European Commission
Summary
TLDRIn this insightful discussion, Peter, a key advisor to the European Commission on financial innovation, addresses the progress of the Markets in Crypto-Assets (MiCA) regulation. He highlights the importance of implementing rules and the urgency of meeting the June 2024 deadline for stablecoin provisions. Peter also discusses the challenges of regulating emerging financial innovations like NFTs and DeFi, which were not part of the original MiCA proposal. The conversation touches on the potential of MiCA as a regulatory model for other jurisdictions, acknowledging the unique position of the US in this regard.
Takeaways
- 😀 Peter is a key advisor on financial innovation at the European Commission and is considered a pioneer in the field of MI (Markets in Crypto-Assets).
- 📈 The success of MI will be determined by its adoption and implementation, with Peter leaving it to posterity to judge its success.
- 📝 The MI regulation includes MAA (Markets in Crypto-Assets Act) which is a significant part of the process but requires further implementing rules and delegated acts for clarity.
- 🔍 The European supervisory authorities are currently developing standards for MAA, which will be turned into delegated acts by the Commission.
- ⏳ There is a sense of urgency in the development process due to the approaching deadlines for MAA application, especially with stablecoin provisions starting on June 30th and crypto asset service providers by December 31st, 2024.
- 🏛 The European Parliament elections will temporarily halt the review process for delegated acts, affecting the timeline for MAA's full implementation.
- 🔄 The Commission is expected to complete the implementation process in time for MAA to go into production, despite the tight schedule.
- 🚀 MI aims to address new financial innovations but acknowledges it may not cover all emerging areas like NFTs, DeFi, and crypto lending, which were not prevalent when the regulation was drafted.
- 📋 The legislature has asked for a report on issues like non-fungible tokens, decentralized finance, and crypto lending by the end of 2024 to assess if regulation updates are needed.
- 🔑 The MAA includes 'passporting rights,' allowing licensed entities to operate across the EU, which is crucial for the single market.
- 🌐 While the EU's approach to MI regulation may serve as a model for other jurisdictions, the 'Brussels effect' may not influence all countries, especially the United States, which tends to follow its own regulatory path.
Q & A
Who is Peter and what is his role in the context of the discussion?
-Peter is referred to as the 'father or grandfather of MI', implying he is a key figure or pioneer in the field of financial innovation within the European Commission.
What does Peter mean by 'MAA' in the transcript?
-MAA stands for the Markets in Crypto-Assets regulation, which is a part of European legislation aimed at regulating the crypto asset market.
What is the significance of the 'MAA process' mentioned by Peter?
-The MAA process refers to the development and implementation of the Markets in Crypto-Assets regulation, which includes adopting standards and implementing rules to provide clarity on the provisions of the regulation.
What is the deadline for the MAA application related to stablecoin provisions?
-The deadline for the MAA application related to stablecoin provisions is the 30th of June of the current year mentioned in the transcript.
How does the European Parliament's closure due to elections affect the MAA process?
-The closure of the European Parliament for elections affects the MAA process because all delegated acts need to be sent to the Parliament for review, and if the Parliament is closed, the review cannot be conducted, causing a delay in the process.
What are the three areas that the legislature has specifically asked the European Commission to report on by the end of 2024?
-The three areas are non-fungible tokens, decentralized finance, and crypto lending and borrowing.
What is the concept of 'maximum extractable value' mentioned by Peter?
-Maximum extractable value refers to a practice where validators of crypto transactions reorder them in a 'mean pool' to increase their mining benefits and potentially trade against transactions in the pipeline, which is an issue that needs to be investigated.
Why did the European Commission create an enabling regime for crypto assets?
-The enabling regime was created to allow consumer and investor interest in crypto assets to be channeled within the EU, under regulatory oversight, rather than moving abroad to less regulated environments.
What is the 'Brussels effect' that Peter refers to?
-The 'Brussels effect' refers to the influence of European regulations on global standards, where other jurisdictions often follow or are inspired by EU regulations.
How does Peter view the potential for the MAA to serve as a model for other jurisdictions?
-Peter suggests that while there is no copyright on the MAA, and it could serve as a model, the extent to which other jurisdictions will emulate it is uncertain, with some possibly finding it too permissive and others, like the US, following their own regulatory paths.
What is Peter's final thought on the likelihood of the US adopting a regulatory framework similar to the MAA?
-Peter ends with a quote from Churchill, implying that while the US may not immediately follow the Brussels effect, they may eventually adopt a similar regulatory framework after exploring other options.
Outlines
📜 Regulatory Developments in the EU's MAA Process
The conversation begins with the acknowledgment of Peter's significant role in financial innovation within the European Commission. He discusses the current state of the Markets in Crypto-Assets (MAA) regulation, emphasizing the adoption of MAA as a significant step but not the final one, as it is accompanied by implementing rules and delegated acts for further clarity. The process of developing these standards with European supervisory authorities is described as intense and time-sensitive, with deadlines for stablecoin provisions and crypto asset service providers approaching. The impact of European Parliament elections on the legislative process is also highlighted, as the Parliament's closure affects the review of delegated acts. Peter expresses optimism about the timely completion of MAA implementation, despite the challenges.
🌐 Addressing Innovations and the Future of MAA
In the second paragraph, the discussion shifts to the challenges of regulating emerging financial innovations such as non-fungible tokens (NFTs), decentralized finance (DeFi), and crypto lending and borrowing, which were not initially part of the MAA proposal. Peter explains that while the MAA does not currently address these areas, the European Commission is mandated to report on such issues after 18 months, by the end of 2024. This report will assess whether these innovations present problems and if regulation through a potential MAA 2 is necessary. The conversation also touches on the concept of 'maximum extractable value' in transaction validation and the need to investigate its implications. Peter suggests that the MAA may serve as a model for other jurisdictions, drawing parallels with the UK's regulatory conversations and acknowledging the unique approach of the United States, which is not immediately influenced by the 'Brussels effect' but may eventually adopt a similar regulatory framework.
🤝 Closing Remarks and Thanks
The final paragraph is a brief closing where the host thanks Peter for his insights and contributions to the discussion. It serves as a polite conclusion to the interview, without any additional content or information.
Mindmap
Keywords
💡European Commission
💡MAA (Markets in Crypto-Assets Regulation)
💡Delegated Acts
💡Stablecoin Provisions
💡Crypto Asset Service Providers
💡Decentralized Finance (DeFi)
💡Non-Fungible Tokens (NFTs)
💡Maximum Extractable Value (MEV)
💡Passporting Rights
💡Brussels Effect
Highlights
Peter, an advisor to the European Commission on financial innovation, discusses the status and future of the Markets in Crypto-Assets (MiCA) regulation.
Success of MiCA is yet to be determined, with Peter leaving it to posterity to judge its impact.
The MiCA process includes implementing rules and delegated acts to provide clarity on its provisions.
European supervisory authorities are currently developing standards for MiCA, which will be turned into delegated acts.
There is a rush to finalize MiCA before the stablecoin provisions kick in on June 30th and the rest at the end of 2024.
European Parliament elections may affect the process as the Parliament will be closed for business, impacting the review of delegated acts.
Peter expresses optimism that all will be completed in time for MiCA to go into production.
Financial regulators are often criticized for fighting the last battle or crisis, with MiCA facing similar challenges with new innovations like NFTs and DeFi.
The European Commission is expected to report on new financial innovations not covered by MiCA after 18 months.
Three specific areas identified for the report are non-fungible tokens, decentralized finance, and crypto lending and borrowing.
The report will also consider other issues that have emerged since the legislative process began.
Peter discusses the issue of staking and the need to investigate the practice of maximum extractable value in crypto protocols.
The report on these issues is required by the end of the year, though Peter notes the Commission often misses deadlines.
MiCA is seen as an enabling regime that holds promise for distributed ledger technology and blockchains.
Peter suggests that MiCA may serve as a model for other jurisdictions, despite some countries finding it too permissive.
The 'Brussels effect' is mentioned, where European legislation often serves as a model for other jurisdictions.
Peter humorously notes that the United States is immune to the Brussels effect but may eventually adopt a similar regulatory framework.
The interview concludes with a quote from Churchill about the Americans doing the right thing after trying everything else.
Transcripts
[Music]
I'm happy to be joined Now by Peter
kirens advisor to the at the European
Commission on financial Innovation and
some would say Peter the the father or
the grandfather of M I suppose um so
tell us where you where does m stand
well first of all success has many
fathers and failure is an orphan and so
I will leave it to posterity to judge
whether m is a success or not if it's a
success I'm claim I'm claiming
Parenthood if it's a failure I know
nothing about it um so where are we now
the the most important part of it and
I'm the happiest about it's adopted it's
done now that is a big part of the MAA
process but it's not everything because
MAA like a lot of European regulation
comes with implementing rules and
delegated acts uh that provide more
flesh on the bone and more clarity on
all of these provisions and we're
currently in the process of uh
developing these standards with the
European supervisory authorities U they
provide these standards to us and then
we turn them into delegated acts adopt
them um and this is a very intense
process um and also we're in a bit of a
rush because uh um the deadline for MAA
application is the stable coin
Provisions kick in on the 30th of June
uh which is the 31st of June the 30d of
June I think uh of this year and then
the rest on crypto asset service
providers kicks in um at uh the end of
the year 31st of December
2024 in between um there will be
European Parliament elections so the
parliament will be closed for business
for a while and that has an effect on
the process because all of the delegated
acts that we need to adopt we need to
send them to the European Parliament for
review and um if the parliament is close
for business they can't do the review so
we have to work around that but we have
um good hopes even more than hopes we
have good expectations that we will have
everything done um in good time for mik
to go into production as they say in the
technology world now people always say
don't they the financial Regulators
always fighting the last battle or the
last crisis and we hear people in the
industry say yeah M's great but it
doesn't deal with the new things like
I'm working on you know nfts and Dey and
tokenization so what happens to these
new Financial innovations that don't fit
into M um we waiting for your m 2 baby
to come along or is that well we are not
focused on a mik 2 right now we are
focused on Mika 1 and its implementation
that is ahead of us that's the the
imminent part but to your point are we
always fighting the last battle in a way
yes because we can only produce policy
or proposals for regulation about stuff
we know about and when we presented the
Mika proposal in 2020 and then before
that there was a year of consultations
uh going into that in
preparations there was no talk about
defi it was a concept we never heard of
um nfds non funable tokens was not an
issue um crypto lending crypto borrowing
staking all of these things just did not
exist maximum extractable value another
thing just wasn't around so we did not
incorporate them uh of course the
legislative process took two years and
towards the end of the process the
legislature did realize that there were
a number of points which were had
appeared in the market which were not in
the proposal uh and rather than just
rushing them in they said look the
European commission should report on
these issues by the end after 18 months
at the end of
2024 um should report on what these
issues are um if they present a problem
and if this problem uh should be solved
through regulation through aik 2 or or
whatever and so there are three areas
which the legislature mentioned
specifically one is non-fungible tokens
which are are largely excluded but also
partly included non funable tokens which
are part of a collection or a series are
actually covered by MAA and actually
most non-fungal tokens are part of a
collection so they are actually covered
second is um decentralized finance and
then the third is crypto lending and
borrowing so we will do a report on
these three
issues uh but nothing prevents us from
including also other issues that have
appear in the meantime um and that we
consider worthy of of covering in this
report now as I mentioned already um the
issue of staking has come up staking as
a service for example should we do
something about it should be not is
there a problem or um in the validation
of certain crypto protocols you have
what's called maximum extractable value
where people who validate transactions
what they do is they reorder
transactions in What's called the mean
pool in order to increase uh the the the
mining benefit they get that's one thing
they do but some what they also do is
they actually then put other
transactions in between and trading
against the transaction that's in the
pipeline um so this is an issue that we
need to look into as well and um we will
do that
report well uh the the requirement is at
the end of this year uh my experience is
that the commission rarely if ever
actually does it before the deadline it
usually is a little bit after the
deadline I have no idea whether we're
going to meet the deadline commission
anyway it's going to be a new commission
where it's going to be shortly after but
it'll be around that time it's going to
keep you busy for a while Peter one
final question you moved first right
congratulations in a way you moved first
lot of praise for m is it a model in
your experience for other jurisdictions
to follow um well we did it for the EU
so um what we saw when we presented Mika
was that uh first a lot of opportunity
and that's why Mika is an enabling
regime we think that distributed leg
technology and blockchains hold an awful
lot of promise we also saw issues of
financial stability investor protection
Market Integrity so concerns which are
typical concerns of financial regulators
and
so but but there was a lot of consumer
and investor interest in these assets
and rather than these people moving
abroad to exotic places to engage in
these crypto assets we said look if
they're going to do it they may as well
or it's much better that they do it
under the regory sunshine within the EU
so we created this regime for European
issuers European crypto asset service
providers European investors and
European
consumers uh
um we think and for the single Market
because very important MAA has what we
call passporting rights so if you are
licensed in one member State you're good
to go in any member State very very
important to us will it serve as a model
for other jurisdictions just as so many
other pieces of European legislation um
serve as a model um Brussels effect the
Brussels effect yes I don't know
um um
first of all there's no copyright on mik
so if someone feels inspired by it they
are free to um to plagarized it or to
take from it whatever they like but if I
look around a bit um yes probably a lot
of the UK conversation for example is
very similar uh to the conversations
which we had in Brussels so I wouldn't
be surprised uh if the UK ends up um
emulating a lot of what is in maika
they'll probably use proper English
rather than mik mik's English um so I
expect that that we will see is the
model I think that that that we will see
what Mika was supposed to read like had
it been written by an angr phone um but
other jurisdictions I I pick up a bit
that quite a few countries find MAA
maybe too permissive they're not as Pro
DT Pro blockchain as the EU uh was so
where they will actually emulate it I
think the jury is out on this but I
wouldn't be surprised if um quite a
number of jurisdictions that normally
are very sensitive to the process effect
on this occasion will not um um emulate
MAA or not immediately they'll first try
something else um but then and the
Americans there is no Brussels effect in
there is no BR effect they do their own
thing yes um um there is one country in
the world that's immune to the Brussels
effect so far and that is um the United
States but there's that doesn't mean
that there's no hope for the United
States because uh Churchill observed
this and Churchill said that the
Americans always do the right thing
after having tried everything else so of
course we'll still have to go through
the motions but we can be hopeful and in
the expectation that eventually they
will do the right thing and set up a
regulatory framework a policy framework
for distributed ledure techn techology
and blockchain which I think would be
also to the benefit of the United States
Peter always good to end with Churchill
thank you very much thank you
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