The GDPR, also called The Brussels Effect, has influenced regulation in the United States as an example of a global regulatory standard. The EU Markets in Crypto-Assets (MiCA) regulation will enter into force in the fourth quarter of 2022, with a commendable understanding of the industry.
The Fourth Amendment in the United States and Article 8 of the European Convention on Human Rights protect the right to privacy. Despite varying definitions, most people expect reasonable privacy in their correspondence, homes, relatives, and friends.
Businesses, families, and individuals started generating data unprecedently, making existing privacy mandates increasingly uncertain in the 1970s. That information explosion became a problem and gained momentum during the next ten years. Therefore, the European Union (EU) introduced its data protection directive in 1995 to guarantee some fundamental rights regarding personal data.
It is essential to know that an EU directive allows the Member States to determine how it will enter national law. It is a recommendation rather than a regulation to require members to enforce the law.
Since 1995, privacy regulation in the EU went from being a directive to the General Data Protection Regulation (GDPR). The latter became a legal requirement in Europe in 2018.
The GDPR, the benchmark for privacy law, has influenced regulation in other jurisdictions like the United States. Anu Bradford called this phenomenon The Brussels Effect, as it establishes a global regulatory standard.
Cryptocurrency Regulation to Follow the Path of the GDRP
There is a new sector ready to follow this well-traced path going from being an EU directive and regulation to being a global regulatory standard.
For example, Tornado Cash used a protocol designed to disguise financial transactions and increase privacy, but regulators shut it down due to malicious actors. A regulation for decentralized finance (DeFi) would allow the construction of the infrastructures to occur according to the law.
Like in the 1980s, the creation of digital securities and the growth of the DeFi space are unstoppable. Regulation will help support innovators, encourage innovation and protect investors, besides the wide-scale adoption of digital securities trading worldwide.
In the United States, digital stocks fall into a regulatory gray space, with neither the SEC nor the CFTC willing to control them.
Since there have been discussions on regulating digital assets in California, the Senate should push for an amendment to include digital assets. The Digital Financial Assets Act would be payable from 2025 if it received approval.
The European Union Encourages Innovation and Offers Regulatory Models
Contrariwise, regulators in the European Union have dealt with DeFi more quickly. For example, the German Federal Financial Supervisory Authority has encouraged innovation and offered a regulatory model for DeFi elsewhere. Cryptocurrencies are on par with traditional stocks thanks to an amendment to German banking law in 2020.
In addition, the regulation of cryptocurrency markets is accelerating in Brussels. The EU Markets in Crypto-Assets (MiCA) regulation will enter into force in the fourth quarter of 2022, with an 18-month transition period for member states. According to the European Financial Stability and Integration Review 2022, there has been a commendable understanding of the industry.
Although it is still early regarding DeFi, the regulation of digital securities in the EU could follow a path like that of the GDPR. This year, Brussels gave an opinion on asset-based law, which may eventually enter its directive on markets for financial institutions.
By Alexander Salazar
