For the first time, the EU unites crypto-assets, crypto-asset issuers and crypto-asset service providers in a regulatory framework.
The Presidency of the Council and the European Parliament reached a provisional agreement on the proposal of crypto-asset markets (MiCA), which mainly consists of issuers of unbacked crypto-assets, and so-called “stablecoins”, as well as trading platforms and wallets where crypto-assets are held. This regulatory framework aims to protect investors and preserve financial stability, while enabling innovation and promoting the attractiveness of the crypto-asset sector. This will bring more clarity to the European Union, where some Member States already have their own legislation regarding crypto-assets, but no specific regime exists at the EU level.
News from this ever-changing sector confirms the urgent need for EU-wide regulation. The MiCA regulation will better protect Europeans investing in these assets and prevent misuse of crypto-assets, while supporting innovation and the attractiveness of the EU. This historic regulation ends the forest law in the field of crypto-assets and confirms the role of the EU in creating standards for the digital sectors.
Bruno Le Maire, French Minister of Economy, Finance and Industrial and Digital Sovereignty
Regulating the risks associated with crypto-assets
The MiCA Regulation protect consumers against some risks related to investments in crypto-assets and help them avoid fraudulent schemes. Currently, consumers’ rights of protection or redress are very limited, especially when transactions take place outside the EU. Under the new rules, Crypto-asset service providers must comply with strong consumer protection requirements, and are now liable for the loss of crypto-assets belonging to investors.The MiCA Regulation will also cover cases of market abuse in any type of transaction or service, including market manipulation and insider trading.
In addition, players in the crypto-asset market should be declare information about their environmental and climate footprint. The European Securities and Markets Authority (ESMA) will develop draft regulations on technical standards for the content, methods and presentation of information related to the main negative effects on the environment and climate. Within two years, the European Commission must provide a report on the environmental impact of crypto-assets and the introduction of mandatory minimum sustainability standards regarding consensus mechanisms, including proof of work.
To avoid any overlap with the updated law of fight against money launderingwhich will now also include crypto-assets, the MiCA regulation does not duplicate the anti-money laundering provisions set out in the transfer of funds rules agreed on June 29. However, the MiCA Regulation specifies that the European Banking Authority (EBA) is responsible for saving a public registry of non-compliant crypto-asset service providers. Crypto-asset service providers whose parent company is located in countries on the EU list of third countries considered high risk for anti-money laundering activities as well as on the EU non-cooperative list jurisdiction for tax purposes should implement enhanced controls in accordance with the EU Anti-Money Laundering Framework. More stringent requirements may also apply to shareholders and management of crypto-asset service providers, especially regarding their location.
A strong framework for so-called “stablecoins” to protect consumers
The latest events in the markets of the so-called “stablecoins” again underlining the risks faced by investors in the absence of regulation, as well as the potential effects on other crypto-assets.
The MiCA regulation will protect consumers by requiring issuers of “stablecoins” to establish sufficient liquid reserves, with a ratio of 1:1 and a portion in the form of deposits. Each holder of the so-called “stablecoins” can be paid at any time and at no cost to the issuer., and the rules governing the operation of reserves will also provide sufficient minimum liquidity. In addition, all stablecoins will be regulated by the European Banking Authority (EBA), with the issuer’s presence in the EU being a requirement for any issuance.
The development of tokens that refer to one or more assets (asset-referenced tokens or ART) based on a non-European currency, used as a means of payment, may be limited to preserve our monetary sovereignty. To ensure proper management and monitoring of public offerings of ARTs, the issuers of this type of token must have a seat in the EU.
This framework will provide the legal certainty that investors expect and promote innovation within the European Union.
EU-wide rules for crypto-asset service providers and different types of crypto-assets
Under the current provisional agreement, the Crypto-asset service providers will need authorization to operate in the EU. The national authorities must issue the permit within three months. Regarding the largest crypto-asset service providers, the national authorities will always send the relevant information to the European Securities and Markets Authority (ESMA).
the non-fungible token (NFT)i.e. digital assets that represent real things such as works of art, music and videos, are excluded from the scope of MiCA regulation unless they fall within the existing categories of crypto-assets. Within 18 months, the European Commission will be asked to prepare a comprehensive assessment and, if deemed necessary, to assess the need to propose a specific regulatory regime for NFTs and to address the emerging risks in this new market. .
Next steps
The provisional agreement is subject to the approval of the Council and the European Parliament before going through the formal adoption procedure.
context
The European Commission presented the MiCA proposal on 24 September 2020. It is part of the broader framework of the digital finance package, which aims to develop a European approach that promotes technological development and ensures stability in finance and consumer protection. In addition to the MiCA regulation, this package contains a digital finance strategy, a regulation on digital operational resilience in the financial sector (DORA) – which will also cover crypto-asset service providers – and a proposal for a pilot regime. use cases related to Distributed Ledger Technology (DLT).
This package of measures fills a gap in existing EU law by helping to ensure that the current legal framework does not hinder the use of new digital financial instruments. At the same time, it is a question of ensuring that these new technologies and new products fall within the scope of application of financial regulations and mechanisms for managing the operational risks of companies that active in the EU. It therefore aims to support innovation and the adoption of new financial technologies while ensuring an appropriate level of protection for consumers and investors.
The Council adopted its mandate to negotiate the MiCA proposal on 24 November 2021. Trilogues between the co-legislators began on March 31, 2022 that led to today’s provisional agreement.