Concerns Raised by the European Banking Authority
The European Banking Authority (EBA) has raised concerns in a recent report about the cryptocurrency sector’s attempts to evade new regulations outlined in the Markets in Crypto-Assets (MiCA) framework and its associated Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) standards. Enforced in late 2024, MiCA introduced a cohesive regulatory framework for crypto asset providers across the 27 EU member states for the first time.
Regulatory Evasion Tactics
However, the EBA’s report does not specify any particular cryptocurrency firms but expresses concern over ongoing efforts by certain companies to sidestep regulatory obligations. The authority warns that such actions could jeopardize the stability and integrity of the European financial system.
A significant point raised in the report is the practice of “forum shopping.” This tactic involves companies seeking regulatory approval from jurisdictions perceived as having more lenient regulations, enabling them to operate legally in other EU countries later, a process also known as “passporting.” The report cites a prior instance where an unnamed firm applied for registrations in several EU nations rapidly and subsequently withdrew from areas where its applications faced scrutiny, eventually commencing operations in a country where it met minimal resistance.
Additionally, the document indicates that companies with inadequate AML and CFT safeguards have already managed to penetrate the EU market by choosing jurisdictions that have relaxed oversight or previously lowered entry standards.
Transitional Phase and Risks
While MiCA became fully operational last year, it included a transitional phase that allows businesses until July 1, 2026, to secure licenses or to be informed of their non-compliance with regulatory standards. The EBA cautions that entities currently appealing their licensing decisions may continue to function within the EU despite failing to meet MiCA requirements, thus posing a potential risk during this period.
Expert Insights on Regulatory Challenges
Dr. Hendrik Müller-Lankow, a lawyer specializing in cryptocurrency law at Kronsteyn in Germany, confirms that practices such as supervisory arbitrage and regulatory shopping are prevalent across the EU. He argues that these issues may be inevitable if the EU wishes to achieve a unified market while maintaining some degree of regulatory independence among member states.
This variation in enforcement and application of laws stems from differing attitudes among authorities across member nations, he notes. Müller-Lankow suggests that centralizing both supervisory authorities and legal frameworks could mitigate these inconsistencies, a movement that is already in progress to some extent as EU regulators expand their jurisdictions.
Concerns Over Ownership and Governance
Moreover, the EBA has highlighted potential issues regarding the establishment of crypto firms in the EU lacking transparent ownership and governance frameworks. The report details a case where a Virtual Asset Service Provider (VASP) seeking licenses in various EU jurisdictions was discovered to be managed by over 20 distinct entities based primarily outside the EU’s regulatory environment. Such ambiguous structures can facilitate the misuse of shell companies, permitting operations that channel illicit funds while masquerading as legitimate business activities. The EBA warns that entities without real economic activity may serve as conduits for illegal transactions under the guise of legitimate operations.
