While U.S. lawmakers and regulators struggle to deal with the crypto challenge, the EU has embraced crypto and made it part of the European financial system. Last week, the EU Parliament passed the Markets in Crypto-Assets (MiCA) framework establishing crypto as part of the European monetary system.
MiCa should make trading more transparent and easier to track, it says. The regulations also specify minimum capital requirements for crypto asset service providers.
After the European Parliament, the Council of Ministers still has to adopt the regulation. But that is considered a formality because both institutions have already agreed on a common position. MiCA is expected to enter into force in July this year. However, Some provisions will only come into effect gradually; rules on stablecoins, for example, will come into effect in mid-2024. Once in force, companies based in one EU country can also offer their services throughout the EU via the already well-established “passporting principle.”
Among other things, the new regulation obliges crypto asset issuers to publish a so-called whitepaper that provides information on the function of the cryptocurrency, the underlying blockchain, and energy consumption. Furthermore, MiCA expands the rules against market abuse and manipulation.
Moreover, crypto platforms will have to determine information about senders and recipients of transactions in the future. However, this only refers to the exchange of digital currencies into conventional money, such as euros or U.S. dollars. Direct transfers between holders of platform-independent cryptocurrency exchanges (wallets) are not included, as they are too difficult to control.
Legal experts emphasize the fundamental value of the regulation. MiCA lays the foundation for a common understanding, says Bernd Oppold, a partner at KPMG. This is done, he says, through the legal classification of four token categories, each with its specific legal consequences. According to the lawyer, however, it remains to be seen how national laws will be adapted and how the interplay with sets of rules such as the MiFID II financial market directive, will work. EU regulators must develop and enforce standards over the next 18 months.