Crypto investor should be free to make their own choice

Imposing more regulations to protect European crypto investors from external dangers is not a good idea, write Berry van Wijk and Lisanne Haarman in an opinion piece in the Dutch daily financial newspaper Het Financieele Dagblad.

The plea for more regulation to better protect crypto investors in the European Union calls for a nuanced response (Het Financieele Dagblad, 25 March, article in Dutch). The proposal to subject non-EU parties to additional regulation conflicts with a basic principle of EU supervision law. To abandon it would be undesirable.

The principle in question gives investors the freedom to make their own decisions about where to purchase their investment services. This means they are free to opt for a crypto exchange beyond the reach of EU supervision law.

When a consumer decides to use a crypto exchange offering services in the EU, they are protected by EU supervision law. The crypto exchange must have a licence under the MiCAR crypto legislation. This entails obligations that must be met by the crypto exchange on an ongoing basis. European supervisory authorities strictly supervise compliance.

If a consumer, on their own initiative, decides to trade through a crypto exchange outside the EU, that exchange will not suddenly be required to comply with EU rules.

There is EU protection

European investors are in fact protected when they are actively solicited by a non-EU crypto exchange. The threshold for active solicitation of EU investors is low.

For example, it is very common for Dutch finfluencers to advertise all sorts of crypto services on social media. Nevertheless, if a non-EU crypto exchange tries to attract European clients via these finfluencers, EU law applies – along with the requirement to have a licence to operate in the EU market. This enables EU supervisory authorities to take enforcement measures to protect citizens' interests.

It is undesirable for the EU to subject non-EU crypto exchanges to EU regulations if they accept Dutch clients who have contacted them entirely on their own initiative. This would prompt foreign parties to refuse European clients – which would be tantamount to a prohibition for Europeans to trade in crypto outside the EU.

That is in no way what the EU rules aim to achieve. Consumers have the right to make their own decisions about where to buy their services. This freedom applies in the context of crypto, but, in principle, also as regards 'regular' investments and other financial services.

Between two stools

Putting constraints on this freedom is undesirable, as EU residents would fall between two stools when requiring financial services from outside the EU. This could be the case, for example, when an expat wants to open an investment account in their home country, or an exchange student from Asia needs a bank account in their country of origin. The bank will refuse the exchange student if acceptance means that it will have to comply with EU rules.

Consumers can protect themselves by checking the registers of EU supervisory authorities to see whether the crypto exchange has a MiCAR licence. In the Netherlands, the supervisory authority in question is the Dutch Authority for the Financial Markets (AFM). This way, consumers can be assured that they are using service providers bound by European rules and supervision.

The idea of additional regulation seems uncalled-for and inconsistent with the right to make one's own decisions about where to buy services. Crypto investors can protect themselves with the current registers and regulations, and can report abuses to the AFM.