027 – Europe has just placed itself at the forefront of crypto regulation in the world. The European Parliament approved the Market in Crypto Assets, better known as MiCA.
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The “wild west” of the cryptocurrency world
Many in the European Parliament have come to call it, will from now on have legislation that will provide legal certainty, trying to give greater confidence to companies in the sector, as well as establishing a series of rules to prevent abuses.
The Bitcoin boom made clear the need for a major regulation. 2020 was when the European Commission put forward its first text. Now, three years later, (April 2023), the Parliament has approved the final text of the ‘European Regulation on cryptoasset markets’. But it all started before, it was with the emergence of the Bitcoin of 2017 when in the European institutions realized the importance of cryptocurrencies.
Once the text has been approved, it is expected to be published in the Official Journal of the European Union in the coming weeks. For some of the new provisions there will be a margin of between 12 and 18 months for their implementation. In other words, it will not be until early 2025 that we will see the full effects of MiCA.
One of the problems is that the very concept of cryptocurrencies is very complex, and we have multiple entities and mechanisms. The new Regulation has tried to define it. This is the definition of a crypto asset according to MiCA: “A digital representation of value or rights that can be transferred and stored electronically, using decentralized registry technology or similar technology”. Within already, it differentiates between cryptocurrencies, stablecoins or tokens. Activities such as “custody and administration, operation of a trading or exchange platform, execution, advice and arrangement” are also defined.
The regulation also comes in order to avoid cases like FTX. Stefan Berger, one of the MEPs who brought about this regulation, explains that MiCA wants to “restore the trust that was damaged by the FTX case“. Precisely this regulation implements a series of responsibilities to avoid possible cases of corruption like the FTX case. “Many of the practices that were seen with FTX will not be allowed.“
One of the obligations for service providers is to have effective procedures for the detection, management and disclosure of potential conflicts of interest. They will also be obliged to have effective complaint management procedures.
MiCA creates the figure of ‘Crypto-asset service providers’ (CASP). These providers may be intervened in the event of operational hazards detected by the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA).
The text establishes specific anti-corruption rules to regulate that its cryptoassets are not used to finance terrorism or money laundering. It also establishes environmental transparency requirements that will be required of the largest exchanges.
One of the advantages for these providers is that they will not need the permission of each country of the European Union to operate, but a community registry is enabled. Some exchanges such as Coinbase, Gemini or the newer Kraken have already received authorization.
Tokens and DeFi are left out.
Not all crypto will be subject to European regulation nor will it have to be registered to meet the required standards.
The law will also not cover transactions of less than €1000 from cold wallets, nor those transactions between individuals carried out without the intervention of any provider and acting in their own name. In other words, DeFi is also outside the scope of MiCA.
Margin for the ECB to create its cryptocurrency. MiCA does not require the same for CBDCs, the virtual currencies created by central banks. It can be seen as a wink for the European Central Bank to decide over the next few years to launch its own stablecoin.
The crypto industry applauds MiCA. Unlike the United States, Europe has just offered crypto companies a fairly clear picture of what it intends to allow and what it does not, with some leeway.