Cryptocurrencies, the EU tightens on the rules: Council-Parliament Agreement

Provisional agreement reached on the proposal concerning issuers of unsecured digital coins and so-called stablecoins. Objective: To protect investors and preserve financial stability

01 Jul 2022

Veronica Balocco

The EU introduces cryptocurrencies, cryptocurrency issuers and cryptocurrency service providers into a regulatory framework for the first time. The presidency of the EU Council and the European Parliament have in fact reached a provisional agreement, late yesterday evening, on the proposal relating to the cryptocurrency markets (the so-called Mica), which covers the issuers of unsecured cryptocurrencies and the so-called stablecoins, as well as the trading venues and portfolios in which the cryptocurrencies are held. The Commission adopted its

 proposal in September 2020.

This regulatory framework aims to protect investors and preserve financial stability, while enabling innovation and promoting the attractiveness of the cryptocurrency industry. "This will bring more clarity to the European Union, as some member states already have national legislation for cryptocurrencies, but so far there was no specific regulatory framework at EU level." The agreement will now have to be confirmed by member states' ambassadors to the EU and the relevant parliamentary committee, before it can be definitively approved by the two  EU co-legislators.

These, summarised in a note from the Council, are the main points of the agreement.

Index of topics

Risk regulation

Cryptocurrency service providers will have to comply with strict requirements to protect consumers' wallets and become responsible in case of loss of investors' cryptocurrencies. Mica will also cover any type of market abuse related to any type of transaction or service, in particular for market manipulation and insider dealing.

Environmental impact

Players in the cryptocurrency market will have to declare information about their environmental and climate footprint. The European Securities and Markets Authority (ESMA) will develop draft regulatory technical standards on the content, methodologies and presentation of information related to the main negative impacts on the environment and climate. Within two years, the European Commission will have to provide a report on the environmental impact of cryptocurrencies and the introduction of mandatory minimum sustainability standards for consensus mechanisms, including proof-of-work.

Anti-money laundering

To avoid overlaps with the updated anti-money laundering (AML) legislation, which will now also cover cryptocurrencies, the MICA does not duplicate the anti-money laundering provisions set out in the new update of the rules on the transfer of funds agreed on June 29. However, the European Banking Authority (EBA) is tasked with maintaining a public register of non-compliant cryptocurrency service providers. Cryptocurrency service providers, whose parent company is located in countries listed on the EU list of third countries considered high risk for anti-money laundering activities, as well as on the EU list of non-cooperative jurisdictions for tax purposes, will have to undergo enhanced controls in line with the EU anti-money laundering framework.

Stablecoin

Stablecoin issuers  will have to build up a sufficiently liquid reserve, with a ratio of 1/1 and partly in the form of deposits. Each holder of stablecoins will be offered a credit at any time and free of charge by the issuer, and the rules governing the operation of the reserve will also provide for adequate minimum liquidity. In addition, all so-called stablecoins will be supervised by the European Banking Authority (EBA), with the issuer's presence in the EU as a prerequisite for any issuance. The development of asset-referenced tokens (Art) based on a non-European currency, as a widely used means of payment, will be constrained to preserve our monetary sovereignty. Art issuers will need to have a registered office in the EU to ensure proper supervision and monitoring of public offerings of asset-referenced tokens.

Suppliers

Cryptocurrency service providers (CASP) will need a permit to operate within the EU. The national authorities will have to issue the authorisations within a period of three months. As regards the larger CACs, national authorities will regularly transmit relevant information to the European Securities and Markets Authority (ESMA).

Excluding Nft

Non-fungible tokens (NFTs) such as digital assets representing real objects such as art, music and video will be excluded from the scope, unless they fall into existing cryptocurrency categories. Within 18 months, the European Commission will be tasked with preparing a comprehensive assessment and, if deemed necessary, a specific, proportionate and horizontal legislative proposal to create a regime for NPTs and address the emerging risks of that new market.

Leave a Reply

Your email address will not be published. Required fields are marked *