EU sets rules to regulate cryptocurrencies

EU sets rules to regulate cryptocurrencies, providing an appropriate regulatory balance

European Union (EU) countries and the European Parliament have reached an agreement to regulate all cryptocurrencies for the first time in the EU market, from their authorization and supervision to transparency requirements with consumers and their environmental impact.

“This historic regulation will put an end to the crypto Old West and confirms the EU’s role as a regulator for digital issues,” French Economy Minister Bruno Le Maire said in a statement.

The Cryptoactive Market Regulation (MiCA) seeks to bring order to the market for assets that are increasingly used as a means of payment or investment, but which are not subject to any of the rules or guarantees from which traditional financial services are governed.

“The EU is the first to introduce comprehensive rules on crypto, I hope others will follow,” said Financial Services, Financial Stability and Capital Markets Union Commissioner Mairead McGuinness on her Twitter account, introducing this initiative on September 24, 2020.

Thus, the new regulations aim to address the challenges posed in terms of consumer protection, privacy, money laundering, financing of illicit activities and even risks to financial stability in the case of stablecoins — cryptocurrencies linked to the value of a traditional asset such as as currency or commodity.

“MiCA is a European success” and “will be a global standard” congratulated the European Parliament’s negotiator Stefan Berger.

The EU, therefore, brings cryptoactive, cryptoactive issuers and cryptoactive service providers under one regulatory framework.

The regulation provides that in order to operate in the EU, cryptocurrency service providers must have a physical presence on the continent and receive prior authorization from national authorities.

At the same time, requirements are introduced on the information they must provide to investors about the use they will make of their funds, their obligations or the risks of the investment.

The main provisions agreed by dealers for those issuing and trading crypto assets (including asset reference tokens and e-money tokens) cover transparency, disclosure, authorization and supervision of transactions.

Thus, consumers will be better informed about risks, costs and charges.

In addition, the new legal framework will support market integrity and financial stability by regulating public offerings of crypto assets.

The agreed text includes measures against market manipulation and the prevention of money laundering, terrorist financing and other criminal activities.

Therefore, the MiCA will cover crypto assets that are not regulated by existing financial services legislation.

To combat money laundering risks, the European Securities and Markets Authority (ESMA) must establish a public register for non-compliant cryptoactive service providers providing services in the European Union without authorization.

Thus, the option of European supervision was imposed despite pressure from some countries for surveillance to remain in the hands of national authorities, which would have left more room for states to compete with each other to attract cryptocurrency providers to their territory.

In contrast, since non-fungible tokens (NFTs) are unique (movie tickets or video game items, for example) and, unlike cryptocurrencies, are not traded or exchanged in equivalence, they fall outside the scope of the MiCA. However, depending on their development, the rules provide for reclassification as financial instruments or as crypto assets subject to the MiCA.