According to a report by CoinDesk, Financial regulators in the US and Europe have something in common: They are both working tirelessly to find a solution regarding the oversight and taxation of the cryptocurrency industry.
However, as both sides work with lobbyists and financial experts to create legislation that will both protect investors and enable crypto companies, while at the same time taxing a share of the profits, their methodology is proving to be very different.
In the US, the Securities and Exchange Commission (SEC) has been focusing on wide-ranging legislation for the crypto industry, while simultaneously passing judgment and handing out punitive fines to alleged bad actors within the space. In 2018, the SEC took 18 digital token-related actions, up from five in 2017.
The Europeans, however, seem more focused on exploring what structure the decision-making process should take. They are forming committees. They are having debates. They are, it would appear, preparing more for a perennial discussion on cryptocurrencies than they are preparing to act.
While these two different approaches might seem the result of cultural differences, i.e. the swift, results-oriented nature of the Americans vs. the methodical and careful style of the European, the truth is that each approach is based upon uniquely different legal structures and traditions.
European law is predicated upon Napoleonic code, or “civil law,” in which everything is regulated by pre-established law. Regulation in Europe is often stuffy and comprehensive, making it inflexible and hard to update. The benefit is a set rules that cover all eventualities and encourages harmonized coordination among the European nation-states. The downside, however, is an extremely slow-moving legislation process.
US law, in comparison, is built upon a “common law” system, in which judges have more power in decision making. Rules, though made on a case-by-case basis, are typically based upon prior rulings.
The US has the clear advantage, being an a single nation, whereas the European Union has many sovereign nation-states to answer to. Actions taken by the EU must typically be ratified by the member countries, Due to the different national interests, getting things done can become very difficult and time consuming.
In the US, the relationship between the federal agencies and the individual states is rather straight forward. Federal law overrides states law, meaning that the federal government can set the standards and regulations for the cryptocurrency industry at the national level. It is then up to the states to create any additional legislation, provided it does not infringe upon the federal statutes.
A report released by the ESMA last week revealed gaps in the current regulations and suggested measures to resolve them. However, a regional securities body admitted that many of these potential solutions went beyond the scope of the committee, implying that a realistic resolution was not yet in sight.
Europe is most likely to see individual countries take their own steps toward crypto regulation. Because of the smaller market sizes and fragmented jurisdiction, this will likely curtail the number of tokens issued in Europe.
The US, on the other hand, will likely to continue its pattern of going after unregistered securities offerings, as it examines listing proposals and moves toward legislative clarity.
As its European counterparts slowly debate the structure of regulation, the SEC may soon find itself setting the precedent for crypto regulation and oversight.