The growth in crypto - Interview with Peter Kerstens, European Commission

Summary

In 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

00:00

📜 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.

05:05

🌐 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.

10:05

🤝 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.

Keywords

💡European Commission

The European Commission is the executive branch of the European Union responsible for proposing legislation, implementing decisions, upholding the EU treaties, and managing day-to-day business. In the video, Peter Kirens is an advisor to this body, particularly on financial innovation.

💡MAA (Markets in Crypto-Assets Regulation)

MAA is a comprehensive regulatory framework proposed by the European Commission to regulate crypto assets and related services within the EU. Peter discusses its implementation, the challenges faced, and the timeline for its adoption, highlighting its significance for financial stability and investor protection.

💡Delegated Acts

Delegated acts are non-legislative acts that the European Commission uses to amend or supplement non-essential elements of EU legislation. Peter mentions that these acts provide more clarity and detail to the MAA, and their timely adoption is crucial for the regulation to be fully operational.

💡Stablecoin Provisions

Stablecoin provisions are specific regulations within the MAA framework that pertain to stablecoins, a type of cryptocurrency pegged to a stable asset. Peter notes that these provisions are set to take effect by the end of June, underscoring their importance in the broader regulatory landscape.

💡Crypto Asset Service Providers

Crypto asset service providers are entities that offer services related to cryptocurrencies, such as exchanges or wallets. The MAA regulation includes specific rules for these providers, which will be enforced starting at the end of December 2024. Peter discusses the impact and necessity of these regulations.

💡Decentralized Finance (DeFi)

Decentralized finance refers to financial services conducted without traditional intermediaries, using blockchain technology. Peter highlights that DeFi was not initially included in the MAA proposal, but it has become a significant area of interest that the European Commission will report on by the end of 2024.

💡Non-Fungible Tokens (NFTs)

Non-fungible tokens are unique digital assets verified using blockchain technology. Peter mentions that while NFTs were not originally a focus of the MAA proposal, they are now recognized as an important aspect that will be reviewed, particularly those that are part of a collection or series.

💡Maximum Extractable Value (MEV)

Maximum extractable value is a concept in blockchain technology where validators reorder transactions in the mempool to maximize their own profits. Peter identifies MEV as an emerging issue that needs regulatory attention due to its potential impact on the fairness and integrity of blockchain transactions.

💡Passporting Rights

Passporting rights allow companies authorized in one EU member state to operate throughout the EU without needing additional authorization. Peter points out that these rights are a critical feature of the MAA, facilitating a single market for crypto asset service providers across the EU.

💡Brussels Effect

The Brussels Effect refers to the global influence of EU regulations. Peter discusses whether the MAA will serve as a model for other jurisdictions, noting that while the EU aims to lead in financial regulation, the adoption of similar frameworks by other regions, like the UK or the US, remains uncertain.

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