In Europe, the end of the ‘crypto wild
west’ is here. Or, at least, so believes the French Finance Minister, Bruno Le
Maire.
Le Maire’s projection comes on the heel of
the progress made by the European Union (EU) on the Markets in Crypto-Assets regulation
(MiCA) proposal.
MiCA, a component of the EU’s digital finance (DigFin) package, seeks to regulate issuers of stablecoins and other
unbacked crypto-assets such as Bitcoin. It also wants to bring operators of crypto-asset
trading venues and wallets within its ambit.
On June 30th, the Council of the European
Union announced that the Council Presidency and the European Parliament, the
two legislative bodies of the European Union (EU), had finally reached a
provisional agreement on MiCA.
Discussions on MiCA started in September
2020 after the European Commission, the executive arm of the EU, presented MiCA
for legislative deliberations.
The Council explained that MiCA will
protect investors and preserve Europe’s financial stability while also giving
room for innovation and making the region’s crypto-asset industry attractive.
“This [MiCA] will bring more clarity in the
European Union, as some member states already have national legislations for
crypto-assets, but so far there has been no specific regulatory framework at the EU
level,” the Council of EU explained.
The “landmark regulation,” as Maire puts
it in the statement, is being positioned to set up the EU as a standard-setter
for the digital asset industry.
“MiCA will better protect Europeans who
have invested in these assets, and prevent the misuse of crypto-assets while
being innovation-friendly to maintain the EU’s attractiveness,” Maire said.
Over the years, industry stakeholders and
regulators alike have clamored
for regulatory oversight to curtail the vulnerabilities of the emerging
cryptocurrency industry.
In light of the recent
Tether-LUNA crash, efforts to put the industry under
check have become even more intense with the G7 countries in May calling for swift,
comprehensive regulation of crypto assets.
In fact, last week, the Financial
Stability Board, the international body that monitors and makes recommendations
about the global financial system, called
for international regulation and supervision of
crypto-asset activities.
The European Union believes with MiCA, it
can secure Europe’s place in this emerging market that is redefining finance
and monetary systems across the world.
MiCA’s Lofty Goals
Although MiCA, which is expected to come
into force in 2023-2024, is still undergoing the EU’s trilogues and legislative procedures, the Council of the EU has outlined some of the key
regulatory focus of the proposed legislation.
Summarily, the goal of MiCA is to protect
European consumers, enshrine environmental sustainability, and prevent money
laundering in the crypto industry.
The EU says it wants to bring all national
legislations of member countries on cryptocurrency into uniformity through
MiCA.
So, under MiCA, member countries will be
required to follow the block’s regulatory provisions. For example, an authorization license for a
crypto asset service provider (CASP) must be issued within a timeframe of three
months.
National authorities will be required
to transmit regularly relevant information on their largest CASPs to the
European Securities and Markets Authority (ESMA), an independent EU authority.
The EU also wants to shield individual
investors in the region against some of the risks such as fraud associated with
crypto assets.
According to the provisional agreement, MiCA
will fight market abuse, such as market manipulation and insider trading that
exploit European consumers.
“Currently, consumers have very limited
rights to protection or redress, especially if the transactions take place outside
the EU,” the Council said.
“With the new rules, CASPs will have to
respect strong requirements to protect consumer wallets and become liable in case
they lose investors’ crypto assets.”
Holger Arians, the CEO of Banxa, a Web3 on
and off-ramp solution, believes that this provision is one of MiCA’s ‘several
core strengths’.
“Its [MiCA] anti-market abuse provisions are a
major step forward in combating insider dealing in crypto markets,” Arians told
Finance Magnates.
“Requiring official white papers for
traded coins is critical for transparency. Overall, the standards that MiCA
sets safeguard customer funds in cases of insolvency,” the CEO added.
MiCA also has its eyes on stablecoins, the cryptocurrency pegged against fiat currencies such as the dollar to remain stable.
This is because of the possible impact stablecoins can have
on traditional financial markets. The recent Luna crash probably drives home
the point faster.
Due to risks, MiCA’s current provision agreement requires stablecoin
issuers to establish their presence in any of the EU countries. Issuers will also
be asked to insure stablecoin holders by building up a ‘sufficiently liquid reserve’.
This reserve, which is to be partly in the
form of deposits, is to be based on a 1/1 ration.
“Every so-called stablecoin holder will be
offered a claim at any time and free of charge by the issuer, and the rules
governing the operation of the reserve will also provide for an adequate
minimum liquidity,” the Council said.
However, Jeffrey Blockinger, the General
Counsel of Quadrata, a Web3 passport network that enables traditional institutions to enter
the world of decentralised finance (DeFi) and crypto, posits that “some of the stablecoin rules look
like they could be unworkable.”
Blockinger, who is also a former CEO of the Association for Digital Assets Markets believes that the disclosure
requirements for coin offerings and listings and MiCA’s oversight on crypto
asset service providers should help legitimize the asset class for investors
sitting on the sidelines.
Furthermore, MiCA wants to confront some of the
climate-change-related concerns stakeholders have against the use of digital
assets, especially how some cryptocurrencies such as Bitcoin are created
through a power-draining consensus mechanism called Proof-of-Work (PoW).
The Council says the European Commission,
the union’s executive arm, will be tasked with setting up mandatory minimum
sustainability standards within two years.
Still, on safety, anti-money laundering (AML) and countering the financing of terrorism (CFT) come into
view under MiCA. CASPs will be required to watch out for possible money
laundering in line with the EU’s AML framework.
This oversight will cover CASPs whose
parent companies are located in countries listed on the EU list of third countries
considered at high risk for anti-money laundering activities. Additionally, it is applicable in the EU list of
non-cooperative jurisdictions for tax purposes, it said.
To achieve this, the trade bloc explained, the
European Banking Authority, the independent regulator of the European banking
sector, will be tasked with maintaining a public register of non-compliant
CASPS.
However, MiCA makes an exception of
non-fungible tokens (NFTs) which are digital assets used to show ownership of unique items. The EU says the creation of separate legislation will
be delegated to its commission.
“Within 18 months, the European Commission
will be tasked to prepare a comprehensive assessment and, if deemed necessary,
a specific, proportionate and horizontal legislative proposal to create a
regime for NFTs and address the emerging risks of such a new market,” the trade bloc explained.
Experts who spoke to Finance Magnates believe that leaving out NFTs from the regulation’s ambit is not a
wise move.
“The rationale for placing NFTs outside
the scope of the proposals is not clear. MiCA may have missed an opportunity to
mitigate a potential NFT-base speculative investment bubble,” Vince Howard, the
Marketing Director of Opis Group Limited, a British blockchain technology
company, told Finance Magnates.
Moreover, Arians believes the EU could benefit from further scrutiny in the areas of NFTs
and DeFi.
“As
increasingly large segments of the [crypto] market, regulators will need to provide
legislative clarity that pertains to NFTs and DeFi respectively,” the Banxa CEO
said.
Europe’s Crypto Regulatory Landscape
According to the 2022 Global State of Crypto
report by Gemini, the adoption of cryptocurrency in Europe (17%) is in line with
developed nations, including Australia and the United States, where 18% and
20%, respectively, have bought crypto.
However, when compared to the global average (23%), cryptocurrency
ownership in Europe is lower.
Due to the uncertainties many have about cryptocurrencies, countries in this region appear to be
moving at different paces or taking different approaches to crypto regulation.
“Europe’s crypto
regulatory landscape is still in its early days,” Isaac Tebbs, the Founder of
CryptoBoost, told Finance Magnates.
“There are a few
countries like Malta and Switzerland that have been very welcoming to crypto
businesses and have created a regulatory framework for them,” Tebbs said.
In September
2020, Switzerland passed the Blockchain Act, becoming one of the first
countries in the world to enact legal regulations for blockchain technology.
The Act permits the
operation of licensed cryptocurrency exchanges and subjects crypto assets to
AML/CFT compliance procedures.
While Switzerland
is seen as one of Europe’s top crypto-friendly countries, France’s regulatory approach
is deemed much stricter.
However, in May
2021, France became the first major European country to give approval to Binance to establish its cryptocurrency
exchange business in the country. In May 2019, the French government had amended the
country’s PACTE Act, introducing specific regulations for digital asset service
providers and initial coin offerings.
Germany has no specific regulatory framework for the cryptocurrency industry.
However, existing general financial regulations in the capital market and
banking sectors as well as AML laws are being extended to digital currencies and
tokens.
Although the
United Kingdom has
exited the EU, as a major European country, it will be a major influence on
Europe’s cryptocurrency industry.
The UK has
no specific laws on cryptocurrency. However, following the launch of a consultation on crypto assets and stablecoins in 2021, the UK Government in
April this year announced
a series of measures it will take to make the country a global hub for
crypto asset technology and investment.
These measures,
among others, include legislating on stablecoins so as to introduce them into
the country’s payments framework. The UK also plans to consult on wider
regulation of the crypto asset sector later this year.
These developments
show that crypto regulation in Europe, as obtainable in other parts of the world, is at the initial
stages with lots of room for flexibility.
“The landscape
is currently fragmented. There is very real competition across the EU to attract the most talent and startups to their member states,” said Benjamin Whitby, the Head of Regulatory Affairs at Qredo, a network of digital asset
custodians tools for financial institutions.
“This is very
encouraging for crypto overall but could lead to the pendulum swinging too far
and lax controls,” Whitby added.
Headaches for MiCA
Speaking further to Finance Magnates, Whitby noted that while MiCA is “a very
ambitious and broad framework”, time is a disadvantage as EU’s coordinated
efforts “takes a long time to land.”
“My opinion is
that smaller bite size pieces should have been attempted to harmonize key risk
areas,” Whitby said.
“DeFi is so far out of the regulators’ skill set they should not even attempt to
regulate at this time. The recent blow ups have been in the centralized finance (CeFi) space, and the
UK is taking advantage of Brexit and racing ahead to enable stablecoins,” the
crypto regulation expert added.
One thing MiCA has to achieve is finding
the right balance between being innovation-inducing or stifling.
“The key test will be whether the
proposals remain proportionate or develop characteristics of regulatory
overreach, exceeding the level of issuer-operator approval and scrutiny applied
to their legacy equivalents,” Howard noted.
The Opis Group marketing director pointed out that while MiCA
“will weed out the weakest projects at a stroke,” it will provide
certainty to consumers.
On top of that, the blockchain expert wondered how some
provisions of the regulation will be applied retrospectively once passed, adding that MiCA “remains thin on specifics around how compliance and
enforcement will take place.”
“While it’s too early, ahead of its concrete
implementation, to assert weaknesses in the proposals, there are ambiguities,
particularly in terms of how the regulations will be retrospectively applied to
reputable, long-standing projects that did not, for example, publish a white
paper at the project’s inception,” Howard explained.
MiCA:
Europe’s Rocket to the Crypto Promised Land?
The 2022 Global State of Crypto Report by
Gemini shows that compared to other regions of the world, a lesser number of people
in Europe think cryptocurrency is the future of money.
According
to the report, a significant number of respondents from the region agreed that the tax
complexities of owning cryptocurrency have kept them from investing in digital
assets.
Will MiCA be able to change this state of
things in Europe? Can regulation take Europe to the crypto-promised land?
“I doubt the EU will become the crypto promised land but MiCA will resolve the uncertainty regarding offering services
to EU citizens and operations of crypto asset service providers in the EU,” Quadrata’s
Blockinger told Finance Magnates “No, the EU process is too slow,” Whitby said.
Also commenting, Howard noted that the “talk
of a ‘crypto promised land’ is what has led to the wholly unregulated explosion
in blockchain-based digital currencies and services, many of which have turned
to dust.”
As the world awaits a united regulatory front from authorities
in the United States following President Joe Biden’s executive
order issued in March, the question of how Europe’s EU-wide crypto
regulatory landscape will shape out can only be answered in time.
In Europe, the end of the ‘crypto wild
west’ is here. Or, at least, so believes the French Finance Minister, Bruno Le
Maire.
Le Maire’s projection comes on the heel of
the progress made by the European Union (EU) on the Markets in Crypto-Assets regulation
(MiCA) proposal.
MiCA, a component of the EU’s digital finance (DigFin) package, seeks to regulate issuers of stablecoins and other
unbacked crypto-assets such as Bitcoin. It also wants to bring operators of crypto-asset
trading venues and wallets within its ambit.
On June 30th, the Council of the European
Union announced that the Council Presidency and the European Parliament, the
two legislative bodies of the European Union (EU), had finally reached a
provisional agreement on MiCA.
Discussions on MiCA started in September
2020 after the European Commission, the executive arm of the EU, presented MiCA
for legislative deliberations.
The Council explained that MiCA will
protect investors and preserve Europe’s financial stability while also giving
room for innovation and making the region’s crypto-asset industry attractive.
“This [MiCA] will bring more clarity in the
European Union, as some member states already have national legislations for
crypto-assets, but so far there has been no specific regulatory framework at the EU
level,” the Council of EU explained.
The “landmark regulation,” as Maire puts
it in the statement, is being positioned to set up the EU as a standard-setter
for the digital asset industry.
“MiCA will better protect Europeans who
have invested in these assets, and prevent the misuse of crypto-assets while
being innovation-friendly to maintain the EU’s attractiveness,” Maire said.
Over the years, industry stakeholders and
regulators alike have clamored
for regulatory oversight to curtail the vulnerabilities of the emerging
cryptocurrency industry.
In light of the recent
Tether-LUNA crash, efforts to put the industry under
check have become even more intense with the G7 countries in May calling for swift,
comprehensive regulation of crypto assets.
In fact, last week, the Financial
Stability Board, the international body that monitors and makes recommendations
about the global financial system, called
for international regulation and supervision of
crypto-asset activities.
The European Union believes with MiCA, it
can secure Europe’s place in this emerging market that is redefining finance
and monetary systems across the world.
MiCA’s Lofty Goals
Although MiCA, which is expected to come
into force in 2023-2024, is still undergoing the EU’s trilogues and legislative procedures, the Council of the EU has outlined some of the key
regulatory focus of the proposed legislation.
Summarily, the goal of MiCA is to protect
European consumers, enshrine environmental sustainability, and prevent money
laundering in the crypto industry.
The EU says it wants to bring all national
legislations of member countries on cryptocurrency into uniformity through
MiCA.
So, under MiCA, member countries will be
required to follow the block’s regulatory provisions. For example, an authorization license for a
crypto asset service provider (CASP) must be issued within a timeframe of three
months.
National authorities will be required
to transmit regularly relevant information on their largest CASPs to the
European Securities and Markets Authority (ESMA), an independent EU authority.
The EU also wants to shield individual
investors in the region against some of the risks such as fraud associated with
crypto assets.
According to the provisional agreement, MiCA
will fight market abuse, such as market manipulation and insider trading that
exploit European consumers.
“Currently, consumers have very limited
rights to protection or redress, especially if the transactions take place outside
the EU,” the Council said.
“With the new rules, CASPs will have to
respect strong requirements to protect consumer wallets and become liable in case
they lose investors’ crypto assets.”
Holger Arians, the CEO of Banxa, a Web3 on
and off-ramp solution, believes that this provision is one of MiCA’s ‘several
core strengths’.
“Its [MiCA] anti-market abuse provisions are a
major step forward in combating insider dealing in crypto markets,” Arians told
Finance Magnates.
“Requiring official white papers for
traded coins is critical for transparency. Overall, the standards that MiCA
sets safeguard customer funds in cases of insolvency,” the CEO added.
MiCA also has its eyes on stablecoins, the cryptocurrency pegged against fiat currencies such as the dollar to remain stable.
This is because of the possible impact stablecoins can have
on traditional financial markets. The recent Luna crash probably drives home
the point faster.
Due to risks, MiCA’s current provision agreement requires stablecoin
issuers to establish their presence in any of the EU countries. Issuers will also
be asked to insure stablecoin holders by building up a ‘sufficiently liquid reserve’.
This reserve, which is to be partly in the
form of deposits, is to be based on a 1/1 ration.
“Every so-called stablecoin holder will be
offered a claim at any time and free of charge by the issuer, and the rules
governing the operation of the reserve will also provide for an adequate
minimum liquidity,” the Council said.
However, Jeffrey Blockinger, the General
Counsel of Quadrata, a Web3 passport network that enables traditional institutions to enter
the world of decentralised finance (DeFi) and crypto, posits that “some of the stablecoin rules look
like they could be unworkable.”
Blockinger, who is also a former CEO of the Association for Digital Assets Markets believes that the disclosure
requirements for coin offerings and listings and MiCA’s oversight on crypto
asset service providers should help legitimize the asset class for investors
sitting on the sidelines.
Furthermore, MiCA wants to confront some of the
climate-change-related concerns stakeholders have against the use of digital
assets, especially how some cryptocurrencies such as Bitcoin are created
through a power-draining consensus mechanism called Proof-of-Work (PoW).
The Council says the European Commission,
the union’s executive arm, will be tasked with setting up mandatory minimum
sustainability standards within two years.
Still, on safety, anti-money laundering (AML) and countering the financing of terrorism (CFT) come into
view under MiCA. CASPs will be required to watch out for possible money
laundering in line with the EU’s AML framework.
This oversight will cover CASPs whose
parent companies are located in countries listed on the EU list of third countries
considered at high risk for anti-money laundering activities. Additionally, it is applicable in the EU list of
non-cooperative jurisdictions for tax purposes, it said.
To achieve this, the trade bloc explained, the
European Banking Authority, the independent regulator of the European banking
sector, will be tasked with maintaining a public register of non-compliant
CASPS.
However, MiCA makes an exception of
non-fungible tokens (NFTs) which are digital assets used to show ownership of unique items. The EU says the creation of separate legislation will
be delegated to its commission.
“Within 18 months, the European Commission
will be tasked to prepare a comprehensive assessment and, if deemed necessary,
a specific, proportionate and horizontal legislative proposal to create a
regime for NFTs and address the emerging risks of such a new market,” the trade bloc explained.
Experts who spoke to Finance Magnates believe that leaving out NFTs from the regulation’s ambit is not a
wise move.
“The rationale for placing NFTs outside
the scope of the proposals is not clear. MiCA may have missed an opportunity to
mitigate a potential NFT-base speculative investment bubble,” Vince Howard, the
Marketing Director of Opis Group Limited, a British blockchain technology
company, told Finance Magnates.
Moreover, Arians believes the EU could benefit from further scrutiny in the areas of NFTs
and DeFi.
“As
increasingly large segments of the [crypto] market, regulators will need to provide
legislative clarity that pertains to NFTs and DeFi respectively,” the Banxa CEO
said.
Europe’s Crypto Regulatory Landscape
According to the 2022 Global State of Crypto
report by Gemini, the adoption of cryptocurrency in Europe (17%) is in line with
developed nations, including Australia and the United States, where 18% and
20%, respectively, have bought crypto.
However, when compared to the global average (23%), cryptocurrency
ownership in Europe is lower.
Due to the uncertainties many have about cryptocurrencies, countries in this region appear to be
moving at different paces or taking different approaches to crypto regulation.
“Europe’s crypto
regulatory landscape is still in its early days,” Isaac Tebbs, the Founder of
CryptoBoost, told Finance Magnates.
“There are a few
countries like Malta and Switzerland that have been very welcoming to crypto
businesses and have created a regulatory framework for them,” Tebbs said.
In September
2020, Switzerland passed the Blockchain Act, becoming one of the first
countries in the world to enact legal regulations for blockchain technology.
The Act permits the
operation of licensed cryptocurrency exchanges and subjects crypto assets to
AML/CFT compliance procedures.
While Switzerland
is seen as one of Europe’s top crypto-friendly countries, France’s regulatory approach
is deemed much stricter.
However, in May
2021, France became the first major European country to give approval to Binance to establish its cryptocurrency
exchange business in the country. In May 2019, the French government had amended the
country’s PACTE Act, introducing specific regulations for digital asset service
providers and initial coin offerings.
Germany has no specific regulatory framework for the cryptocurrency industry.
However, existing general financial regulations in the capital market and
banking sectors as well as AML laws are being extended to digital currencies and
tokens.
Although the
United Kingdom has
exited the EU, as a major European country, it will be a major influence on
Europe’s cryptocurrency industry.
The UK has
no specific laws on cryptocurrency. However, following the launch of a consultation on crypto assets and stablecoins in 2021, the UK Government in
April this year announced
a series of measures it will take to make the country a global hub for
crypto asset technology and investment.
These measures,
among others, include legislating on stablecoins so as to introduce them into
the country’s payments framework. The UK also plans to consult on wider
regulation of the crypto asset sector later this year.
These developments
show that crypto regulation in Europe, as obtainable in other parts of the world, is at the initial
stages with lots of room for flexibility.
“The landscape
is currently fragmented. There is very real competition across the EU to attract the most talent and startups to their member states,” said Benjamin Whitby, the Head of Regulatory Affairs at Qredo, a network of digital asset
custodians tools for financial institutions.
“This is very
encouraging for crypto overall but could lead to the pendulum swinging too far
and lax controls,” Whitby added.
Headaches for MiCA
Speaking further to Finance Magnates, Whitby noted that while MiCA is “a very
ambitious and broad framework”, time is a disadvantage as EU’s coordinated
efforts “takes a long time to land.”
“My opinion is
that smaller bite size pieces should have been attempted to harmonize key risk
areas,” Whitby said.
“DeFi is so far out of the regulators’ skill set they should not even attempt to
regulate at this time. The recent blow ups have been in the centralized finance (CeFi) space, and the
UK is taking advantage of Brexit and racing ahead to enable stablecoins,” the
crypto regulation expert added.
One thing MiCA has to achieve is finding
the right balance between being innovation-inducing or stifling.
“The key test will be whether the
proposals remain proportionate or develop characteristics of regulatory
overreach, exceeding the level of issuer-operator approval and scrutiny applied
to their legacy equivalents,” Howard noted.
The Opis Group marketing director pointed out that while MiCA
“will weed out the weakest projects at a stroke,” it will provide
certainty to consumers.
On top of that, the blockchain expert wondered how some
provisions of the regulation will be applied retrospectively once passed, adding that MiCA “remains thin on specifics around how compliance and
enforcement will take place.”
“While it’s too early, ahead of its concrete
implementation, to assert weaknesses in the proposals, there are ambiguities,
particularly in terms of how the regulations will be retrospectively applied to
reputable, long-standing projects that did not, for example, publish a white
paper at the project’s inception,” Howard explained.
MiCA:
Europe’s Rocket to the Crypto Promised Land?
The 2022 Global State of Crypto Report by
Gemini shows that compared to other regions of the world, a lesser number of people
in Europe think cryptocurrency is the future of money.
According
to the report, a significant number of respondents from the region agreed that the tax
complexities of owning cryptocurrency have kept them from investing in digital
assets.
Will MiCA be able to change this state of
things in Europe? Can regulation take Europe to the crypto-promised land?
“I doubt the EU will become the crypto promised land but MiCA will resolve the uncertainty regarding offering services
to EU citizens and operations of crypto asset service providers in the EU,” Quadrata’s
Blockinger told Finance Magnates “No, the EU process is too slow,” Whitby said.
Also commenting, Howard noted that the “talk
of a ‘crypto promised land’ is what has led to the wholly unregulated explosion
in blockchain-based digital currencies and services, many of which have turned
to dust.”
As the world awaits a united regulatory front from authorities
in the United States following President Joe Biden’s executive
order issued in March, the question of how Europe’s EU-wide crypto
regulatory landscape will shape out can only be answered in time.