European Union (EU) Passes Crypto Regulations – Here are 9 Key Takeaways

According to a statement, the law aims to ensure that crypto transfers, as is the case with any other financial operation, can always be traced and suspicious transactions blocked. 'The so-called “travel rule,' already used in traditional finance, will in future cover transfers of crypto assets.

The European Union has become the first significant jurisdiction globally to introduce an extensive law for cryptocurrencies after legislators voted 517-38 (with 18 abstentions) in support of a fresh crypto licensing system called Markets in Crypto Assets (MiCA).

The lawmakers’ decision was made after a discussion in April 2023 during which they mostly favored the proposal which will require crypto exchanges and wallet providers to obtain a license to operate throughout the European Union. The proposal also requires stablecoin issuers, linked to the value of other assets, to maintain adequate reserves.

According to a statement, the law aims to ensure that crypto transfers, as is the case with any other financial operation, can always be traced and suspicious transactions blocked. ‘The so-called “travel rule,’ already used in traditional finance, will in future cover transfers of crypto assets. 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.

Additionally, the European Parliament voted 529-29 (with 14 abstentions) in favor of another regulation called the ‘Transfer of Funds’ which mandates crypto operators to verify the identity of their customers to prevent money laundering.

The proposal for the Markets in Crypto Assets (MiCA) regulation was initially presented by the European Commission in 2020. The Council presidency and the European Parliament agreed to the regulations on a provisional basis in June 2022.

With the new rules:

  • Crypto asset service providers (CASPs) will need an authorization in order to operate within the EU with a license issued in one country effective in any other EU country
  • Crypto asset service providers will have to respect strong requirements to protect consumers wallets and become liable in case they lose investors’ crypto-assets
  • MiCA will also cover any type of market abuse related to any type of transaction or service, notably for market manipulation and insider dealing
  • Actors in the crypto assets market will be required to declare information on their environmental and climate footprint
  • MiCA requires that the European Banking Authority (EBA) will be tasked with maintaining a public register of non-compliant crypto-asset service providers
  • Crypto asset service providers, whose parent company is located in countries listed on the EU list of third countries considered at high risk for anti-money laundering activities, as well as on the EU list of non-cooperative jurisdictions for tax purposes, will be required to implement enhanced checks in line with the EU AML framework

Tougher requirements may also be applied to shareholders and to the management of the CASPs, notably with regard to their localisation:

  • MiCA will protect consumers by requesting stablecoins issuers to build up a sufficient liquid reserve with a 1/1 ratio and partly in the form of deposits. Every stablecoin holder will be offered a claim at any time and free of charge by the issuer, and the rules governing the operation of the reserve will also provide for an adequate minimum liquidity
  • The law would also cover transactions above €1,000 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 transfers conducted without a provider or among providers acting on their own behalf

Furthermore, stablecoins will be supervised by the European Banking Authority (EBA) with a presence of the issuer in the EU being a precondition for any issuance.

In a statement released by the European Parliament, Stefan Berger, the lawmaker who led negotiations on the law, said the rules put the EU ‘at the forefront of the token economy.’

 

“The European crypto asset industry has regulatory clarity that does not exist in countries like the U.S.,” Berger said. “The sector that was damaged by the FTX collapse can regain trust.”

 

For it to become a law, it needs to receive approval from both the European Parliament and the EU Council, which represents member states. The regulation’s key provisions will begin to take effect a little over a year after its publication in the EU’s official journal, most likely in June 2023.

 

 

 

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