"New Milestone": EU Passes MiCA Encryption Regulation

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Odaily Translator | Nian Yin Si Tang

Summary:

Summary:

- The European Commission, EU lawmakers and member states reached an agreement on the latest crypto regulation on Thursday.

- The regulation, called “Markets in Crypto-Assets” (MiCA), is the first attempt to create a comprehensive regulatory framework for digital assets in the region.

- EU MP Stefan Berger said the rules would "clear up the wild west of cryptoassets".

European Union officials reached an agreement on a crypto regulatory framework on Thursday - what could be the first major regulatory framework for the cryptocurrency industry.

After hours of negotiations, the European Commission, EU lawmakers and member states reached an agreement in Brussels. Just a day earlier, the EU’s three governing bodies — the European Parliament, the European Council and the European Commission — had finalized measures aimed at combating cryptocurrency money laundering. However, the policy decision was to not perform AML checks on most transfers to non-custodial crypto wallets. EU lawmaker Ondřej Kovařík confirmed the interim agreement in a tweet, saying “EU institutions have reached an interim political opinion on funds transfer rules, which I believe strikes the right balance in reducing AML risks in the cryptocurrency industry, At the same time, it does not impede innovation and impose an excessive burden on enterprises."

The new rules come at a brutal time for digital assets, with bitcoin facing its worst quarterly decline in more than a decade.

The landmark law, dubbed “Markets in Crypto-Assets,” or MiCA for short, could make things harder for many players in the crypto market, including stablecoin issuers and exchanges.

Under the new rules, stablecoins like Tether's USDT and Circle's USDC will be required to maintain sufficient reserves to meet redemption requests in the event of large-scale withdrawals, and they will also be limited to a daily transaction amount of 200 million euros within.

While EU member states will be the main enforcers of these rules, the European Securities and Markets Authority (ESMA) has also been empowered to act if it believes that crypto platforms are failing to adequately protect investors, or threaten market integrity or financial stability. Can step in to ban or restrict encrypted platforms.

“Today, we are establishing order in the ‘Wild West’ of cryptoassets and establishing clear rules for a unified market that will provide legal certainty for cryptoasset issuers, guarantee equal rights for service providers, and ensure that High standards for consumers and investors," said Stefan Berger, an MP who is leading the negotiations on behalf of the European Parliament.

MiCA will also address environmental concerns surrounding cryptocurrencies, requiring businesses to disclose their energy consumption and the environmental impact of digital assets.

A previous proposal could ban PoW crypto mining. However, the proposal was voted down by lawmakers in March this year.

The rules would not affect tokens without an issuer, such as bitcoin, but trading platforms would need to warn consumers of the risk of loss associated with trading digital tokens.

Regulators also agreed to take steps to reduce the anonymity of certain encrypted transactions.

Authorities are deeply concerned about the use of crypto assets to launder money and evade sanctions, especially in the wake of the Russia-Ukraine conflict.

It is worth mentioning that this time NFT was excluded from the proposal. The European Commission will next have to determine whether NFT needs to establish its own regulatory regime within 18 months.

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Unstable "stablecoins"

The rules come in the wake of the UST crash, a disaster that wiped out tens of billions of dollars from the entire cryptocurrency market.

“The EU in general is not happy with stablecoins,” said Robert Kopitsch, secretary-general of blockchain for Europe, an encryption lobby group.

Policymakers have been skeptical of such tokens since Facebook's failed attempt to launch a stablecoin in 2019. Authorities worry that private digital tokens could eventually threaten sovereign currencies such as the euro.

Tether CTO Paolo Ardoino said the world's largest stablecoin issuer welcomes regulatory clarity.

Additionally, Circle chief strategy officer Dante Disparte said the EU framework represents a "significant milestone."

MiCA "is to the encryption industry what GDPR (General Data Protection Regulation) is to privacy," he said, referring to the groundbreaking European Union data protection rules that set the tone for the rest of the world, including California and Brazil. ) set the standard.

reduce fragmentation

Overall, MiCA is the EU's first attempt to create comprehensive regulation for digital assets. While some of these very strict policies have unnerved some crypto companies, some in the industry see the move as a positive step and believe Europe can lead the way in crypto regulation.

The rules are expected to come into force as early as 2024, a landmark move that would see the EU roll out laws targeting the cryptocurrency market ahead of the US and UK.

“Market coordination is the key to truly creating larger crypto companies in Europe,” said Patrick Hansen, a consultant at venture fund Presight Capital. “Europe currently lacks large crypto companies, and fragmentation is one of the reasons.”According to Katherine Minarik, vice president of legal affairs at Coinbase,The company is seeking licenses in several European countries, including France