The European Parliament gave its final approval to a law on Thursday that will establish the first European rules for the crypto industry.
The EU’s Markets in Cryptoassets (MiCA) regulation has been approved. This is the first time governments have attempted to monitor the industry at this scale. It follows the collapses of several major players, including the crypto exchange FTX.
Mairead McGuinness, European Financial Services Commission Commissioner, said on Wednesday she expects that the legislation will come into effect in July once it has been formally approved. Specific requirements will be implemented gradually, with stablecoin rules, for instance, to take effect in July 2024.
MiCA has been in development for the past three years and is being welcomed by crypto executives who see it as an alternative to US enforcement actions that are used to police the crypto sector. Critics say that the law will be outdated even before it is implemented, as it won’t prevent some of the recent high-profile crypto blowups. There are calls for updating.
The final approval marks the beginning of a new regulatory era on unregulated crypto-markets, which has caused massive losses for many first-time traders and provided a haven for fraudsters and criminal groups for more than a decade, said Ernest Urtasun. Ernest Urtasun is a Greens parliament member and shadow representative for MiCA. But “important regulatory issues remain unaddressed, and new legislative action is urgently required to complete MiCA.”
MiCA, once implemented, will require that any company providing crypto-related services within the EU register in one of its member states. This allows the company to operate throughout the EU. The European Banking Authority and European Securities and Markets Authority are responsible for ensuring that crypto platforms adhere to the rules. This includes having an adequate risk management and governance process in order to avoid another FTX style collapse.
Alisa Dicaprio, Chief Economist at R3, an enterprise blockchain company, says that a unified regulatory framework across the EU will make it more appealing for digital-assets companies. It will also put pressure on other countries to follow suit. Data from PitchBook shows that Europe is gaining market share from the US in terms of crypto venture capital investments.
DiCaprio stated that it would be surprising if other jurisdictions such as the UK and US didn’t follow suit, and accelerate their crypto-regulatory efforts.The investment in European crypto has increased dramatically over the past quarter
McGuinness stated during the debate in the parliament that “we are putting safeguards into place to prevent companies operating on the EU markets from engaging in certain practices that have led some cryptoasset operators collapse.” As we’ve seen in the past few months, strict rules and supervision is very important because we had projects like FTX Terra Luna Celsius Voyager collapse.
She said: “While crypto markets are still too small to cause systemic risk, we know that there is increasing linkage between traditional financial services and crypto markets.”
The text was approved in a preliminary manner last summer. However, it does not include any rules that govern the sectors which were the cause of last year’s greatest failures.
Crypto lending, decentralized finance and nonfungible tokens are all beyond MiCA’s scope, leading some figures including European Central Bank chief Christine Lagarde to already call for a MiCA 2
Crypto firms are unhappy with MiCA’s regulation on stablecoins – digital tokens which aim to maintain a 1:1 value with a stable asset such as the US dollar – where operators will have to maintain local reserves, and face trading limits for tokens not denominated in euros that aren’t backed up by fiat currency.
The need to comply with the bloc’s Travel Rule will also undermine the sector’s ability to provide anonymity to users, Coinbase CEO Brian Armstrong on Tuesday saying “anything is on the table” when it comes to its future operating footprint.
Coinbase Vice President for Business Development Nana Murugesan explained that the long development process and delayed implementation has left crypto firms in a “transition period” where they need to apply for licenses in several EU states before passporting takes effect.
In an interview with Murugesan on Monday, he said that once MiCA is implemented, the strategy will become more of a pan European bloc. He also added that Europe’s crypto regulation was still “a work in progress.”