To increase their influence in finance, giant companies in the information technology industry, so-called Big Tech, seek to expand their business into the cryptocurrency market. However, these interests cause challenges and risks to financial stability, competition in the private sector, and monetary policy. A Policy Letter by the Leibniz Institute for Financial Research SAFE addresses the problems and calls for regulatory, antitrust, and platform-specific solutions by the European Commission to minimize potential threats to smaller FinTech as well as consumers.
According to the SAFE Policy Letter, Big Tech cryptocurrencies significantly increase the industry’s influence in the financial services market. “Despite recent developments, the scope of the European regulation of cryptocurrencies is limited”, state Anastasia Kotovskaia from the SAFE Policy Center and her co-Author Nicola Meier in their paper. Currently, only the fifth Anti-Money Laundering Directive (AMLD) addresses the issue of cryptocurrencies imposing anti-money laundering obligations. Thus, the authors call for a harmonized European regulatory framework.
Proposed EU regulations
Starting in 2020, the Commission imposed three draft regulations: the Markets in Crypto-Assets (MiCA), a Digital Markets Act (DMA), and a Digital Services Act (DSA). The negotiations on DMA and DSA were only recently completed in the spring of 2022, and negotiations on MiCA have reached the final stage.
Arguably, the draft regulation of MiCA largely affects Big Tech’s cryptocurrencies since threats imposed by Big Tech using asset-referenced tokens (ART) and e-money tokens (EMT) are limited through MiCA. Other types of crypto assets remain excluded making arbitrage behavior in this category likely, that is Big Tech’s targeted profit maximation through price, rate, or interest rate differentials in crypto assets.
Big Tech as cryptocurrency-issuer
Since Big Tech also competes in the field of online platforms, the authors of the SAFE Policy Letter suggest a regulation under the DSA. The DSA obliges the platforms to mitigate and monitor systemic risks as well as to provide the Commission with in-depth information rights regarding the issuance of cryptocurrencies.
As Big Tech-issued cryptocurrency yields horizontal and vertical competitive advantages, the paper discusses the role of DMA. Since platforms have the necessary infrastructure to issue and provide their own crypto products, they may prioritize it over traditional providers. Therefore, the DMA will regulate Big Tech so the companies cannot collect standardized customer data. Although the Commission has advanced in the proposal of harmonized regulation, the authors of the SAFE Policy Letter suggest further refinement and elaboration of existing draft regulations, so that anticompetitive threats of Big Tech to smaller FinTech and other market participants are avoided.