European parliamentarians have voted overwhelmingly to approve the Markets in Crypto Assets (MiCA) regulation, making the European Union (EU) the world’s first major jurisdiction to establish a comprehensive regulatory framework for crypto-assets.
With 517 votes in favour to 38 against (and 18 abstentions), European Parliament (EP) members gave the green light on 20 April to rules related to supervision, consumer protection and also environmental safeguards for crypto-assets, including crypto-currencies such as bitcoin.
The EP’s MiCA rapporteur Stefan Berger MEP hailed his fellow lawmakers’ green light as putting the 27-nation bloc “at the forefront of the token economy”.
Significant provisions for those issuing and trading crypto-assets (including asset-reference tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions. The new legal framework also regulates crypto-assets’ public offerings and the agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing and other criminal activities.
To counter money-laundering risks, the Paris-headquartered European Securities and Markets Authority (ESMA) is instructed to create a public register for non-compliant crypto assets service providers that operate in the EU without authorisation. In addition, to reduce crypto-currencies’ carbon footprint, ‘significant’ service providers will have to disclose their energy consumption.
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Crypto track and trace
MEPs have also approved (with 529 votes in favour to 29 against and 14 abstentions) the first piece of EU legislation for tracing transfers of crypto-assets.
This text aims to ensure that crypto transfers can always be traced and suspicious transactions blocked (as is the case with any other financial operation).
A so-called ‘travel rule’, already used in traditional financial transactions, will also now cover crypto-asset transfers. This means that information on the source of the asset and its beneficiary will have to ‘travel’ with the transaction and be stored on both sides of the transfer.
The law will also cover transactions above €1,000 (about £885/$1,097) from so-called ‘self-hosted’ wallets (a crypto-asset wallet address of a private user) when they interact with hosted wallets managed by crypto-assets service providers. The rules do not apply to person-to-person (P2P) transfers conducted without a provider or among providers acting on their own behalf.
The new crypto-related rules are part of EU’s overarching digital finance strategy, which was adopted by the European Commission more than two-and-a-half years ago.
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‘Consumers will be protected’
“Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust,” Berger said in the wake of the EP vote – a reference to the Bahamas-headquartered cryptocurrency exchange whose implosion over just a few days in November 2022 made mainstream news around the world.
“Consumers will have all the information they need and all underlying risks around crypto-assets will have to be monitored,” the German MEP continued. “We secured that the environmental impact disclosure will be taken into account by investors in crypto assets. This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”
‘Habemus [we have] MiCA! The EU Parliament has accepted the regulation. A milestone for the crypto asset industry. Thanks to all colleagues and also for all the support of the community here!’: a tweet (German language) posted by Stefan Berger MEP on 20 April
“Currently illicit flows in crypto-assets are moved swiftly across the world, with a high chance of never being detected,” said Ernest Urtasun, a Spanish MEP and co-rapporteur for the EP’s economic and monetary affairs committee on crypto-asset transfers. “The recast of the TFR [Transfer of Funds Regulation] will oblige crypto-asset service providers to detect and stop criminal crypto flows and also ensure that all categories of crypto companies are subject to the full set of anti-money laundering obligations. This will close a major loophole in our AML [anti-money laundering] framework and implement in the EU the most ambitious travel rule legislation in the world so far, in full compliance with international standards.”
Assita Kanko, a Belgian MEP and co-rapporteur for the EP’s civil liberties, justice and home affairs committee, said: “Parliament and Council have found a fair compromise that will make it safer for people of good will to hold and trade crypto assets. However, it will make it more difficult for criminals, terrorists and sanctions evaders to misuse crypto assets. Any administrative burden on crypto companies and innovators will be more than offset by the fact that we are unifying the currently fragmented European market that has 27 regulatory regimes.”
EU as the ‘standard-setter’
The centre-right European People’s Party (EPP) Group, which is the EP’s largest political group, described MiCA’s approval as making Europe the ‘standard-setter in the global crypto market’, adding that it would ‘put order in the Wild West of crypto-assets’.
“I hope that our rules could become a model for other countries,” the EU’s financial services commissioner, Mairead McGuinness, said at the EP. She described the rules as a ‘world first’ (see embedded tweets, below).
Across the Atlantic the White House published a ‘comprehensive framework’ for the responsible development of digital assets in September 2022. This came just over six months after President Joe Biden signed an executive order setting out a national policy for digital assets across six priorities: consumer and investor protection; promoting financial stability; countering illicit finance; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
The government of the UK – which left the EU in 2020 – opened a consultation in February on plans to ‘robustly’ regulate a ‘broad suite’ of crypto-asset activities. Its 82-page ‘Future financial services regulatory regime for cryptoassets’ consultation is due to close on 30 April. Economic secretary to the Treasury, Andrew Griffith, delivered a speech on 17 April in which he spoke of “fostering innovation by making the UK a safe jurisdiction for crypto-asset activity”.