The European Council presidency and the European Parliament have reached a provisional agreement on the controversial Markets in Crypto-Assets (MiCA) proposal. This regulation will bring crypto-assets, crypto-asset issuers and crypto-asset service providers (CASPs) under an EU-wide regulatory framework intended to protect investors and preserve financial stability. By being a “leader in regulation,” the EU also hopes that more legal certainty in the crypto sector will help fostering innovation.
Regulation of CASPs
Under the new framework, CASPs will need an authorization to operate within the EU and national authorities will be required to issue the authorizations within three months.
CASPs will have to comply with requirements to protect consumers’ wallets. They might also become liable in case they lose investors’ crypto-assets. In addition, the MiCA regulation will target market abuse such as market manipulation and insider dealing.
Regulation of stablecoins and asset-referenced tokens
In light of recent events, a core piece of the regulation will focus on stablecoins. Issuers of stablecoins will be supervised by the European Banking Authority (EBA). They will have to establish a presence in the EU and build up an adequate minimum liquidity reserve. Holders may claim an exchange at any time and free of charge.
Offering asset-referenced tokens (ARTs) based on a non-European currency will also be regulated. Issuers of ARTs will need to have a registered office in the EU. The legislative aim is to ensure better supervision and monitoring of ARTs.
AML requirements
The MiCA regulation will also add to existing (and upcoming, see below) anti-money laundering (AML) rules. It will require EBA to maintain a public register of non-compliant CASPs. In line with the EU AML framework, CASPs with parent companies located in “high risk” countries will be required to implement enhanced checks.
Environmental impact
The environmental impact of blockchain technologies will also be addressed by the MiCA regulation. The European Securities and Markets Authority (ESMA) will be authorized to develop regulatory technical standards on the presentation of information related to environmental and climate-related impact. These standards will guide actors in the crypto-assets market to declare information on their environmental and climate footprint.
An EU-wide ban of Bitcoin and Ethereum is off the table for now. But the European Commission will be required to provide a report on the environmental impact of crypto-assets and the introduction of mandatory minimum sustainability standards for consensus mechanisms, including proof-of-work, within two years. This might lead to an additional regulatory burden later.
NFTs out of scope
For now, non-fungible tokens (NFTs), will be excluded from the scope of the MiCA regulation as long as they don’t fall under existing crypto-asset categories. But the European Commission will be required to further assess the situation within 18 months after entry into force of the MiCA regulation. If necessary, an additional legislative proposal will be drafted then to set up a regulatory regime specifically for NFTs, too.
Next steps
The provisional agreement is subject to approval by the Council and the European Parliament before going through the formal adoption procedure. The full impact of the new regulation can be assessed once the final text of the new regulation is published.
