The European Parliament approves MiCA legislation, aiming to standardize crypto-asset regulations, enhance investor protection, and promote market integrity across the EU.
The European Parliament has given the go-ahead to groundbreaking legislation focused on tracing crypto-asset transfers within the European Union. This move aims to create a standardized legal framework for the crypto-assets market in the region, strengthen consumer protection, and set up safeguards to prevent market manipulation and financial crime.
Crypto-Asset Transfers Monitoring
MEPs have shown their support for the first-of-its-kind EU legislation that targets tracing transfers of crypto-assets, such as Bitcoin and digital assets. The goal is to make sure that, like other financial operations, crypto transfers are always traceable, and any suspicious transactions can be intercepted. The legislation mandates that transaction data, including the source of the asset and its beneficiary, must “travel” with the transaction and be stored by both parties involved in the transfer. This is an extension of the “travel rule” already prevalent in traditional finance.
Additionally, the new regulations will apply to transactions exceeding €1,000 that involve self-hosted wallets interacting with hosted wallets managed by crypto-assets service providers. Nevertheless, the rules will not cover person-to-person transfers made without a provider or among providers acting independently.
Standardized EU Market Regulations for Crypto-Assets
The European Parliament has also given its final approval to a set of common rules governing the supervision, consumer protection, and environmental safeguards of crypto-assets, including cryptocurrencies under the MiCA framework. The proposed law contains provisions to guard against market manipulation and financial crime, extending coverage to crypto-assets not currently regulated by existing financial services legislation.
Crucial provisions for those issuing and trading crypto-assets, such as asset-reference tokens and e-money tokens, encompass transparency, disclosure, authorization, and oversight of transactions. As a result, consumers will have access to more comprehensive information about the risks, costs, and charges linked to their operations. Furthermore, the updated legal framework will bolster market integrity and financial stability by regulating public offerings of crypto-assets.
Measures Against Market Manipulation and Money Laundering
The agreed-upon text contains measures designed to combat market manipulation, money laundering, terrorist financing, and other criminal activities. The European Securities and Markets Authority (ESMA) aims to create a public register for non-compliant crypto-assets service providers operating in the European Union without proper authorization.
To tackle the significant carbon footprint associated with cryptocurrencies, major service providers will be required to disclose their energy consumption levels.
EU Leading Crypto-Asset Regulation
This innovative legislation places the EU at the cutting edge of the token economy, which currently encompasses over 10,000 distinct crypto-assets. Consumers will benefit from increased protection against deceit and fraud, and the sector, previously marred by the FTX collapse, has the opportunity to regain trust. The inclusion of environmental impact disclosure requirements will be considered by investors in crypto-assets, giving the EU a competitive edge. The European crypto-asset industry now enjoys regulatory clarity that is absent in countries such as the US.
The updated regulations will aid in detecting and halting illegal crypto flows while ensuring that all types of crypto companies are subject to a complete set of anti-money laundering obligations. This legislation fills a significant gap in the EU’s AML framework and introduces the world’s most ambitious travel rule legislation to date, fully compliant with international standards.
By adopting this legislation, the European Parliament is addressing citizens’ demands for the establishment of safeguards and standards governing blockchain technology use, as articulated in Proposal 35(8) of the conclusions of the Conference on the Future of Europe.
A Milestone for the Crypto Asset Industry
The legislation is now awaiting the European Council’s approval before it becomes effective regulation. Stefan Verger, MiCA’s rapporteur and a member of the European Parliament, hailed MiCA as “a milestone for the crypto asset industry” following the vote on April 20.
Finally, MiCA aims to set standard regulations and establish harmonized rules for crypto-assets at the EU level, providing legal certainty for the crypto industry and investors. The regulation will outline guidelines for the operation, structure, and governance of issuers of digital asset tokens, as well as rules on transparency and disclosure requirements for issuing and trading crypto-assets.
According to Chainalysis, the specific provisions of MiCA related to stablecoins will come into force in July 2024, while others, including those on crypto-assets service providers, will apply in January 2025.
Despite the generally cautious optimism surrounding the regulation, there are concerns about the 400-page document. The current draft lacks any mention of decentralized finance (DeFi), fails to address the growing sector of crypto lending and staking, and does not specify any rules for non-fungible tokens (NFTs).
During Paris Blockchain Week 2023, Janet Ho, head of EU policy at Chainalysis, expressed that the success of MiCA would depend on robust feedback and reworking certain parts of the documentation. Nadia Filali, Caisse des Dépôts Group’s blockchain program director, emphasized the importance of governments, regulators, and industry participants developing regulations together.
Nonetheless, EU officials have stressed the safety of investors as the primary objective of MiCA. Joachim Schwerin, one of the principal economists within the European Commission, stated in a recently that MiCA should minimize the negative consequences of incidents like the insolvency of FTX in the future.