The Wolf Of All Streets - Bitcoin In Europe: How Verena Ross, The Chief Regulator, Is Shaping The Future Of Crypto

Starting point is 00:00:00 Scott Melker, I host the Wolf of Wall Street's podcast, and again, this is Verena Ross. First, could you please give us some context, maybe describe the framework of regulation generally in Europe for an ignorant American like myself? Thanks, Scott, and great to be here today. Thank you very much for the invitation. So Verena Ross, I'm the chair of what is called the European Securities and Markets Authority, which was basically an organization created in 2011 after the financial crisis to try to create a more coherent European regulatory framework within the single

Starting point is 00:00:37 market of Europe, bringing the 28 at the time today, 27 different member states together. And our key aims are enhancing investor protection in Europe, making sure that we have stable and orderly financial markets. And we do that together with the national competent authorities, as they are called, so the supervisors and regulators at the national level. It's very much a collective effort where we try to set the overall regulatory framework once the Parliament, the Council, so the legislators have taken a decision, the Commission has proposed it, and then we are there to implement it and work with the national authorities to make sure it's consistently implemented and supervised at European level. That sounds exceptionally challenging because

Starting point is 00:01:28 obviously you have all of the member countries and you have to oversee them and then you have your specific role at ESMA which is not the same even as other regulatory bodies, correct? Yes, so we as ESMA have the remit of the securities markets, so that ranges from the very beginning of finance, so an IPO, a prospectus, how to get into finance in the first place. It ranges via fund management, brokers, exchanges, post-trading infrastructure, and it really tries to cover the whole of Europe, the European Union.

Starting point is 00:02:08 At the same time, we also work very closely with our sister organizations that are covering banking and insurance to really create a common financial regulatory framework across the EU. And then obviously we also have close links with our partners globally, so we talk a lot to our counterparts in the US, in the UK, and broadly globally, and engage also in something that's called the International Committee of Securities Commissions, IOSCO, where we try globally to find common minimum global standards. Crypto investors in the United States face some major challenges. One of them is that there's almost no way to get exposure to the

Starting point is 00:02:49 asset class inside of your traditional investment vehicles. The other thing is the taxes. They are absolutely atrocious. What if I told you there was a way to solve both of these problems? Well, there is. And it's with a self-directed IRA from iTrust Capital. Guys, not only can you open a new self-directed IRA and fund it with the limits each year, but you can actually convert over from your 401k, your Roth IRA, any other IRA that you already have, and you can do that tax-free, just transferring over the balance. And then you can go to cash, buy as much Bitcoin as you want, and not pay taxes when you sell it. You absolutely have to try this if you are in the United States.

Starting point is 00:03:28 Use the link down below. It's bit.ly slash itrust-scott. That's bit.ly slash itrust-scott. You have to try this now. I spoke yesterday actually with Jan Van Eck here, and he was speaking about I think the contentious relationship between the crypto industry and the regulator certainly in the United States or at least that's the industry's impression right and he was saying that he viewed

Starting point is 00:03:55 the environment in Europe as much more favorable. Of course Van Eck has I think 10 billion dollars worth of exchange traded products in Europe so perhaps a bit of that is talking the book. But he viewed the structure, specifically Mika, as much more friendly for the industry than what we have in the United States currently. So I'm not sure I would necessarily use the word friendly. I think what we've done in Europe is the legislators have decided to create a genuine regulatory framework

Starting point is 00:04:26 specifically for cryptoassets, and that is Mika. And that really replaces, in the process of replacing, what was a bit of a patchwork of different national approaches. So some countries already had a specific cryptoasset regime, others did not, and covered it as far as they could under existing financial services regulation. And Mika is trying to take the step to say, okay, let's create something that is common across the European Union area and which basically creates a common process for authorization and supervision of crypto asset service providers. And that is where ESMA is currently working and where we are currently setting underneath the high-level legislation the detailed regulatory framework, trying to provide guidance and clarity as to what the legal framework means.

Starting point is 00:05:22 For that, we are in ongoing consultation, so we have already delivered the first batch of regulatory standards to the Commission to be now finalised through the legislative process, and we are consulting and working on further two batches, and we'll deliver them in June and December this year to then be ready for the entry into force of Mika in January next year. Is that the entirety of the plan? Will the full rollout effectively be done this year or are there future policy or parts of Mika potentially or even

Starting point is 00:06:00 other policies coming that might give further clarity? So first of all, what MICA did was it actually provided the possibility for a transition regime, because there was consciousness that this is an industry which has not necessarily been regulated in Europe, but we also have some national regimes that exist, so we need to create a framework that allows for the transition to the new European regime to happen. So there is the possibility for individual member states to retain their national regime and have a longer transition period up to, 2026. So we are, we, however, as ESMA, have in October already said to the member states, we would prefer if everyone could reduce the length of that transition period

Starting point is 00:06:56 to make it feasible for people to apply, to get ready, but ideally not to extend all the way out to June 26, because otherwise you will remain a bit uneven across Europe as to what the regulatory regime in your specific country is. So with that, the kick-off is basically in January next year, and then there will be further implementation over the the next year probably. Beyond that, there's also a plan to look again at the MICA legal framework because this market and this industry continuously changes and we are conscious of that and so we are also

Starting point is 00:07:39 planning to provide some advice to the Commission probably by the end of the year, early next year, to explain where we see maybe a need to further look at does the regulatory framework of Mika, as it was originally designed after all quite a few years ago, still fit or do we need to make any adjustments? There's a bit of a joke in our industry, like the crypto years are like dog years. You know, it takes 10 years somewhere else is one year in crypto. So how do you, as you just alluded to, how do you deal with an industry that's moving so fast and changing so rapidly

Starting point is 00:08:12 when obviously regulation takes a long time to put in place and it needs to be done right with a very long time horizon in mind? That is definitely a challenge and it's something that we are very conscious of, which is also why we are doing so much work with the national authorities day to day, to try to make sure that we understand where are the challenges that they are facing in the day to day decisions they have to make, whether that's about do we authorize this entity or not,

Starting point is 00:08:40 do we go for potential enforcement because they haven't met one of the requirements, and we try to make sure that we talk to each other to really have a common approach as to how to deal also with some of the maybe novel developments that can come over the period and try to find a common way of doing that. So from my perspective, the key clearly, and that's a call to everyone here for the industry, is be prepared. Talk to your national authority. Make sure that you understand what the requirements will be when Mika kicks in so that we can make sure that we have an industry that is compliant with Mika when we have the legal framework from the beginning of next year. Another, I think, overwhelming idea in the crypto industry, certainly in the United States, is that they've said, come in and talk to us,

Starting point is 00:09:30 come in and register, but that's effectively been proven impossible. But I've heard in Europe, it's different. We certainly expect to authorize and register quite a few. And we've also been very clear in our communication that if you want to provide services in Europe to European customers, don't underestimate that there will be a legal regime and therefore that you do need to be able to comply with that. So we have, for example, also said that there will not be a very lenient interpretation of how you approach your customers. As soon as you approach customers, you need to be sure to be properly authorised and supervised. So we are trying to make sure that people understand that and that we also, as a regulatory and supervisory community, are creating the

Starting point is 00:10:23 right boundaries, both for investors to be properly protected in Europe, but also for those who are actually willing to be compliant and properly enter into the spirit of being regulated by MICA to not be undermined by players who don't play by the rules. What is the overarching view of how consumers should be protected specifically in this market? Is it about not allowing them access to certain parts of the market because they've been deemed too risky? Or is it more about making sure that the consumer and retail are in investing in the crypto markets, that they fully understand whether the people they operate with, the people they are linking up to, are properly authorised and supervised. So that's the first step.

Starting point is 00:11:28 Then it's also about, through the regime, making sure that they have the proper information about what am I actually getting myself in for, what are the risks that I might be taking, and having a clear understanding that there are operational risks as well associated with entering into this market, exposing yourself to one of the players. So from our perspective, it's very important that investors, consumers, citizens properly understand what they are letting themselves in for and that the framework provides at least a step forward to ensure that client assets are properly protected, that there are complaints mechanisms, that there is a clarity of what actually is in this product and what the risks

Starting point is 00:12:18 are. So that's the framework that we are trying to create ultimately to help protect investors better. At the same time, I keep on saying, you know, guys, be also careful. You know, this is not a magic wand that, you know, protects you from losing money. There are risks in this market and you need to be aware of that. So don't assume Mika creates a safe haven. It's not. Right. There are risks in all markets

Starting point is 00:12:46 So this is not unlike the other markets that you regulate and the other problems. I'm sure that you've seen there as well Yes, of course there are similarities in some ways but we've also seen certainly over the last few years a few things which you know really make you as a regulator and supervisor worry about whether you can How you can best protect investors in this environment where there's also a lot of fear of losing out a lot of gamification a lot of very aggressive marketing and that is something which You know worries us as regulators and supervisors. We're all aware of the collapses of the last sort of cycle of the industry that you're alluding to. If a centralized exchange, for example, based in Asia, wants to operate in Europe now,

Starting point is 00:13:36 what's the process for them to actually do that? Are you the first authority that they approach? Do they approach the individual countries? And how do they make sure that they're working properly within the existing regulatory structure? So indeed, they should first and foremost go to the relevant national authority that they believe they want to engage with. There, again, we are making sure that all the national authorities talk to each other because what we want to avoid is that you have the so-called regulatory forum shopping that people basically go and try out and then they go to the next one and say,

Starting point is 00:14:14 but actually those, they would allow us to do this, so why don't you allow us to do this as well? And so you get into a kind of, as you say, forum shopping. So we are trying to make sure that that cannot happen, that we properly exchange information amongst each other. But the authorization decision sits at national level. We will sit behind that at ESMA to make sure that the national authorities exchange information, that they have a common approach for doing the authorization considerations and so on. Now, what if they're not a centralized product? It's a decentralized product, you don't know who necessarily the owner is, it's launched

Starting point is 00:14:50 by an anonymous person. How can they operate within a regulatory framework or can they not? So Mika actually excludes genuinely decentralized finance products. The question is, you know, what does that actually mean? And we actually put out some consultation, some guidance to try to consult also the market. Where is the boundary there? Because one person's DeFi is another person's actually,

Starting point is 00:15:23 no, it's not DeFi. There is someone behind it, and you can actually point to some responsibilities. So it's a very difficult judgment call, but it's something that indeed we also will continue to monitor that boundary of what is within the Mika legal framework and what is not. There's a view, I think, in the US actually that if you are deemed a security, it's a death blow, which shouldn't be, right? Being a security should be perfectly fine.

Starting point is 00:15:50 Is that sort of a shared view in Europe? Do you have the same way of classifying the actual assets? So we have in existing pieces of legislation definitions of financial instruments, but they are then implemented at different national levels a tiny bit differently sometimes. So one of the decisions of why MICA came about was to say, look, let's cut through that and let's actually create a common EU regulatory system for crypto assets that then is a common definition for everyone in the European Union and on

Starting point is 00:16:31 that basis we can move forward. That doesn't mean that there are not further questions of where the boundary is and what is a financial instrument and what's not but that's our equivalent discussion to the US discussion I suppose. So you brought up the idea of seeking a favorable regulator. We call it regulatory arbitrage in the industry, of course. How do you stop that or do you not even try? Are you only concerned with their operations under your jurisdiction and if they want to go find a more favorable regulator

Starting point is 00:17:01 and operate there, kind of not your problem? So regulatory arbitrage is a big issue for us. And within Europe, that's one of our core objectives, to make sure that we have a consistent and harmonized approach to whatever regulation there is and whatever sector we are talking about. But on top of that, as I said earlier, we are engaging in the international debate as well, because we are conscious that this market is not regional, it's not national, it's actually global.

Starting point is 00:17:30 And so there are global players out there. And so we do a lot of working with our fellow regulators around the globe, whether that is US, UK or the Asian regulators. And we have also tried at international level to find some common minimum views of what is a proper approach to crypto assets and to the market of crypto assets. And that is something which IOSCO has pushed, that the Financial Stability Board has pushed,

Starting point is 00:17:58 and that we as ESMA are also actively engaged in. Well, our 20 minutes flew by. We have less than a minute. So I have to ask you then, how do you view the future of crypto in Europe, the future of this industry? I'm not someone who has a crystal ball. I'm just a humble regulator and supervisor. So I will not predict how... I'm not asking about price. No, no. Bull market, Bitcoin predictions. But I think what is important for us is that we actually, with the Mika regime, we now implement that properly, that we make sure that there is a proper, common regulatory approach in Europe.

Starting point is 00:18:38 And with that, we will see how the crypto market will develop from there. I think we're all very hopeful. So thank you so much, everybody. Please, round of applause for Verena Ross. Thanks so much.

The Wolf Of All Streets - Bitcoin In Europe: How Verena Ross, The Chief Regulator, Is Shaping The Future Of Crypto

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