European Union negotiators hammered out the
final details for a provisional agreement late Thursday on a sweeping package
of crypto regulations for the bloc's 27 nations, known as Markets in Crypto
Assets, or MiCA.
“In the Wild West of the cryptocurrency-world,
MiCA will be a global standard setter,” the lead EU lawmaker negotiating the
rules, Stefan Berger, said in a news release. The EU's crypto rules “will
ensure a harmonised market, provide legal certainty for crypto-asset issuers,
guarantee a level playing field for service providers and ensure high standards
for consumer protection.”
Like the EU's trendsetting data privacy
policy, which became the de facto global standard, and its recent landmark law
targeting harmful content on digital platforms, the crypto regulations are
expected to be highly influential worldwide.
The EU rules are “really the first
comprehensive piece of crypto regulation in the world,” said Patrick Hansen,
crypto venture adviser at Presight Capital, a venture capital fund.
“I think there will be a lot of
jurisdictions that will look closely into how the EU has dealt with it since
the EU is first here,” Hansen said.
He expected authorities in other places,
especially smaller countries that don't have the resources to draw up their own
rules from scratch, to adopt ones similar to the EU's, though “they might
change a few details.”
Under the Markets in Crypto Assets
regulations, exchanges, brokers, and other crypto companies face strict rules
aimed at protecting consumers.
Companies issuing or trading crypto assets
such as stablecoins — which are usually tied to the dollar or a commodity like
gold that make them less volatile than normal cryptocurrencies — face tough
transparency requirements requiring them to provide detailed information on the
risks, costs and charges that consumers face.
The rules will help novice crypto investors
avoid falling victim to frauds and scams that regulators have warned are
widespread in the industry.
“That's a huge benefit in this space,
especially for someone who has absolutely no idea where to go to or who to seek
out or where to put my money into," said Jackson Mueller, director of
policy and government affairs at Securrency, a blockchain infrastructure
company.
Providers of Bitcoin-related services would
fall under the regulations, but not Bitcoin itself, the world's most popular
cryptocurrency that has lost more than 70 percent of its value from its
November peak.
To address concerns about the carbon
footprint left by Bitcoin mining, which guzzles massive amounts of electricity
for “proof of work” computer processing to record and secure transactions,
crypto companies will have to disclose their energy use and prominently display
information online about their environmental and climate impact.
Negotiators exempted NFTs, or non-fungible
tokens, which have boomed over the past year. The EU said that unlike
cryptocurrencies, the digital assets, which can represent artwork, sports
memorabilia or anything else that can be digitised, are unique and sold at a
fixed price. But it left room to reclassify them later as a crypto asset under
MiCA or as a financial instrument.
The European rules are aimed at maintaining
financial stability — a growing concern for regulators amid a string of recent
crypto-related crashes. For example, the stablecoin TerraUSD imploded last
month, erasing an estimated $40 billion in investor funds with little or no
accountability.
The meltdowns have spurred calls for
regulation, with other major jurisdictions still drawing up their strategies.
In the US, President Joe Biden issued an executive order in March on government
oversight of cryptocurrency, including studying the impact on financial
stability and national security.
Last month, California became the first
state to formally begin examining how to broadly adapt to cryptocurrency, with
plans to work with the federal government on crafting regulations.
The UK also has unveiled plans to regulate
some cryptocurrencies.
A few European countries, like Germany,
already have basic crypto regulations. One of the EU's goals is bringing rules
in line across the bloc, so that a crypto company licensed in one country would
be able to offer services in other member states.
The EU rules, which would still need final
approval and are expected to take effect by 2024, include measures to prevent
market manipulation, money laundering, terrorist financing and other criminal
activities.
The EU also provisionally agreed Wednesday
on new rules subjecting cryptocurrency transfers to the same money-laundering
rules as traditional banking transfers.
When a crypto asset changes hands,
information on both the source and the beneficiary would have to be stored on
both sides of the transfer, according to the new rules. Crypto companies would
have to hand this information over to authorities investigating criminal
activity such as money laundering or terrorist financing.
The EU institutions are working out the
technical details before the crypto tracing rules receive final approval.
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