According to a recent EU Parliament press release, MEPs voted in favour of a new piece of EU legislation that requires the tracing of transfers of crypto-assets like bitcoins and electronic money tokens. The law, which was provisionally agreed by Parliament and Council negotiators in June 2022, passed with 529 votes in favour, 29 against and 14 abstentions.
The text seeks to ensure that crypto transfers, just like any other financial operation, can be tracked and any suspicious transactions blocked. This includes the “travel rule” which is already used in traditional finance and will now cover crypto asset transfers.
Transfers over €1000 made from self-hosted wallets to hosted wallets managed by crypto-asset service providers will also be subject to the new rules, while person-to-person transactions conducted without a provider or among providers acting on their own behalf are exempt.
- Uniform legal framework for crypto-assets markets in the EU
- Operations with crypto-assets will be traced in the same way as traditional money transfers
- Enhanced consumer protection and safeguards against market manipulation and financial crime
Uniform EU Market Rules For Crypto-Assets
Plenary also gave its final green light with 517 votes in favour to 38 against and 18 abstentions, to new common rules on the supervision, consumer protection and environmental safeguards of crypto-assets, including crypto-currencies (MiCA).
The draft law, which was informally agreed upon with the Council in June 2022, includes measures to combat market manipulation and financial crime.
MiCA will apply to crypto-assets that are not already regulated under existing financial services legislation. Key provisions for those issuing and trading crypto-assets, such as asset-reference tokens and e-money tokens, will require transparency, disclosure, authorisation and supervision of transactions in order to better protect consumers.
In addition, the new legal framework will help to promote market integrity and financial stability by regulating public offers of crypto-assets. The agreed text also incorporates measures against market manipulation and to prevent money laundering, terrorist financing, and other criminal activities.
To counter money-laundering risks, the European Securities and Markets Authority (ESMA) will set up a public register for unregulated crypto assets service providers that operate in the European Union. Finally, to reduce the high carbon footprint of crypto-currencies, significant service providers will have to disclose their energy consumption.
Parliament has responded to the expectations of citizens to set safeguards and standards for the use of blockchain technology, as expressed in Proposal 35(8) of the conclusions of the Conference on the Future of Europe, by adopting this legislation. The texts must now be formally endorsed by Council before they can be published in the EU Official Journal, which will take effect 20 days later.
Source: European Parliament Press Release
Will MiCA Regulation Bring Order to the Wild West of Cryptocurrency?
Stephan Berger, a member of the European Parliament for the CDU, is a major proponent of this regulation. He states, “Europe is now the first continent with comprehensive regulation for crypto assets.” This new regulation brings much-needed order to the previously wild west of cryptocurrencies.
These new rules are not expected to take effect until 2024, by which time companies offering these services will have to comply with the requirements.
What MiCA Regulates
The ordinance sets out regulations for the custody and management of crypto assets, the operation of trading platforms, the exchange of crypto assets for legal tender and other crypto currencies, and the providing of customer orders and advice.
It distinguishes between different types of crypto assets, including asset-related tokens whose value is linked to a basket of other assets, stablecoins whose value is linked to a single fiat currency, all crypto assets that are not asset-related tokens nor stablecoins, and utility tokens intended to provide digital access to a good or service.
Common cryptocurrencies such as Bitcoin and Ethereum definitely fall under the category of MICA. On the other hand, most non-fungible tokens (NFT) are not included, and platforms for crypto credits and lending services are also left out for the time being.
MiCA, Bitcoin & Co.
In order to issue and sell cryptocurrencies in the European Union (EU), companies must obtain a license from national supervisory authorities. The European Securities and Markets Authority (ESMA) will also monitor large crypto companies. As part of the Markets in Crypto-Assets (MiCA) initiative, token issuers must publish a white paper with basic data before issuing the tokens.
Furthermore, service providers must collect information about the sender and recipient of transactions to facilitate investigations into potential money laundering or terrorist activities. However, direct transfers between holders of platform-independent crypto wallets are excluded from this regulation.
MiCA & Stablecoins
Issuers of stablecoins, whose value is pegged to a national currency, a currency basket, or other assets, must maintain a minimum level of liquidity in the future. All firms must have a registered office in the EU and ensure customers the exchange of their stablecoins. Furthermore, the issuer firm must not exceed a certain size, and a MiCA permit is required above a certain threshold. If a stablecoin becomes a generally accepted payment method, the issuance of new tokens must be discontinued.
What’s Next?
Since the first set of regulations from MICA, which covers 400 pages, does not address all cryptocurrency services. Following several bankruptcies that have damaged the industry’s trust, the need for more regulation is greater than ever. U.S. supervisory authorities are taking a hardline stance against large crypto services, such as the Binance exchange.
ECB President Christine Lagarde has already announced a second MiCA regulation for June 2022. This is a significant step forward in bringing trust and reliability to the European Union.
The European Securities and Markets Authority (ESMA) will create a public register of non-compliant crypto asset service providers operating in the European Union without authorization. Additionally, significant service providers will have to disclose their energy consumption to reduce the high carbon footprint of cryptocurrencies.
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