Cryptocurrency issuers and traders are again undergoing a fresh round of scrutiny by economic and financial affair ministers of the European Union. 28 member states of the European Union (E.U.) are planning an informal meeting. The main agenda of the meeting will be review of virtual currencies. In the E.U. meeting, challenges posed by the growing popularity of virtual assets and the possibility of tightening rules and regulation for the digital assets will be discussed. The meeting will be held in Vienna, Austria on 7th September.
The European Union is concerned about the increasing popularity of cryptocurrencies as there is a lack of transparency in the world of crypto. Cryptocurrencies can be used for tax evasion, money laundering, and terrorist financing. These are universal concerns and are similar to the ones underlined by The Reserve Bank of India in their recently released annual report.
Misuse of cryptocurrency can create problems for governments all across the world. On 9th July, E.U. Fifth Anti-Money Laundering Directive came into existence to set the new legal framework to regulate digital currencies. Stricter transparency for the digital currency exchanges and anonymous payments through prepaid cards was the main goal of the new regulation, in order to curb terrorist financing and money laundering.
Cryptocurrencies and Initial Coin Offering (ICOs) come under unregulated financial activities. These unregulated crypto exchanges are unprotected because their existence is outside the global financial regulations. The European Securities and Markets Authority (ESMA) is concerned about the protection of customer losses at the time of an event such as cyber-attack which are not covered by the E.U. law. ESMA has also strengthened the requirements for Contracts for Differences (CFDs) for cryptocurrencies. Now investors must have funds which can cover at least half of a contract value upon opening. The new rule has changed the leverage limit of cryptocurrencies CFDs from 5:1 to 2:1.
Previously ESMA has also warned customers about the risk of cryptocurrencies and ICOs. Despite the warnings from the financial watchdogs of the E.U. Initial Coin Offerings have established more efficient ways to raise capital. ICOs are also trying to integrate capital market in E.U. European Commission is monitoring the developments and determining the need for further actions.
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