Norway could go its own way on crypto asset regulation, central bank suggests

International regulation may be too slow and may represent interests that are not in line with Norway’s, Norges Bank suggests in an annual report.

Norges Bank, the central bank of Norway, has released its annual “Financial Infrastructure Report.” It devoted a considerable part of the report to crypto assets and the question of whether Norway should depend on international regulatory examples to control its market.

The European Union’s Markets in Crypto-Assets (MiCA) regulation will come into force in a year or two, and it “will probably also apply to Norway.” However, “the Ministry of Finance will assess EEA relevance and implementation in Norway,” Norges Bank noted. Norway is a member of the European Economic Area but not the EU.

MiCA may not be adequate to all crypto regulatory needs, Norges Bank said:

“Such targeted regulation often fails to capture risk related to the newest technological developments and activities and can therefore be insufficiently resilient.”

The bank pointed to shortcomings in decentralized finance regulation as an example of this problem in MiCA.

The quality of regulation has a psychological effect. “To have an ex-ante disciplinary effect, it is necessary that participants perceive the likelihood of being detected as sufficiently high,” it said. That is relevant to other authorities, but the bank “would contribute to such assessments,” it added.

“The [Norwegian] authorities should consider a national strategy for regulating crypto-asset markets.”
— Norges Bank, Financial Infrastructure Report 2023, May 25, 2023 https://t.co/b0Z56WdupD pic.twitter.com/DRGHZCX306

— Joshua Rosenberg (@_jrosenberg) May 25, 2023

Further development of MiCA could be driven by national interests that Norway does not share, the paper said. Therefore, “Norwegian authorities should assess whether to proceed more quickly rather than wait for international regulatory solutions. ”

Without such a step, “private entities” could have undue influence over Norwegian regulation such as taxation, the bank said.

The lack of experience with crypto assets, due to their newness, can hinder good regulation. The extent to which current legislation is capable of effectively regulating crypto is one of the outstanding questions surrounding it, the bank continued.

The bank also said it was continuing its research into central bank digital currency and would publish its findings later this year.

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