Following months of debate and speculation, negotiators from the EU’s Economic and Monetary Affairs Committee have finally delivered an update to the Markets in Crypto Assets (MiCA) bill; bringing the crypto industry further under the intense spotlight of regulation.
Thursday’s update to the bill will introduce provisions on supervision, consumer protection and environmental safeguards for crypto-assets, including cryptocurrencies.
Since coming into place back in 2020, MiCA is a form of EU regulation that outlines the use and treatment of cryptocurrencies and the wider digital asset landscape, aiming to fill in the gaps of where current legislation falls short.
The updates apply stringent transparency, disclosure, authorisation and supervision checks to organisations that deal in the issuing and trading of crypto-assets, including asset-reference and e-money tokens, regulators said in the official announcement; while also emphasising higher consumer protections.
In addition, the new legal framework will support market integrity and financial stability by regulating public offers of crypto-assets, and extends to measures against market manipulation, money laundering, terrorist financing and other criminal activities.
To counter money-laundering risks the European Securities and Markets Authority (ESMA) should set up a public register for non-compliant crypto-assets service providers (CASPs) that provide services in the European Union without authorisation; the statement read.
NFTs offered to the public at a fixed price, such as cinema tickets, digital collectibles from clothing brands or in-game items in computer games will be exempt from the scope of MiCA; although this could be subject to change as market conditions evolve.
Aside from providing uniformity to European crypto regulation, the latest update arrives at a time when consumers are increasingly questioning the environmental impact of the industry.
The bill has sought to remedy this front with the introduction of fresh regulation for significant CASPs, who will now have to disclose their energy consumption.
The regulation requires CASPs to make information on their environmental and climate impact publicly available, presented in a prominent place on their website, and that they should forward this information to their national competent authority, which will inform ESMA.
The statement recommended that ESMA prepare regulatory technical standards on all the above obligations to provide the market with clear guidance on how such disclosures should be carried out.
The industry response
Following the announcement, The Fintech Times has consolidated a range of industry experts from across the sector to gauge what the industry’s response to the update is.
For Neal Wilson, co-CEO of EJF Capital, the bill is highly welcomed. “I believe everyone in the digital currency ecosystem is a winner as a result of this agreement,” he said.
“I further believe, for consumers, the regulation provides a tacit endorsement of the technology and offers peace of mind that digital currencies can operate and be used safely, which could encourage more widespread adoption.
“For companies in the space, more customers mean more opportunities to serve them through innovation. For the market, these growth opportunities could spur more investment into the industry.”
Meanwhile, Sheila Warren, CEO of the Crypto Council for Innovation, describes MiCA as “a landmark deal and has been a long time coming,” sharing that “the outcome reflects a sensible coalition approach and provides clarity in critical areas. It also, for the most part, avoids stifling innovation that will benefit some 450 million people across 27 countries.
“I am proud that the Crypto Council’s efforts helped shape this guidance, which generally reflects a nuanced understanding of the issues it addresses. It follows years of education and conversation. Legal and regulatory certainty for the market will enable more crypto firms to invest and innovate across the region. It is an encouraging development.
“This framework has helped put the region on the map as an early and important leader in defining the regulatory environment. It will shape the digital asset ecosystem for years to come.
“We congratulate those involved with this landmark negotiation and look forward to future collaboration with policymakers and regulators as implementation discussions begin.”
Oldrich Peslar, legal counsel at Rockaway Blockchain Fund, a venture capital firm backing Web3 founders, commented: “On a broad level, the MICA regulatory framework is a step forward in unifying crypto-financial regulation across the EU and providing greater certainty for stakeholders to engage with distributed ledger technologies (DLT).
“The anti-market abuse provisions are a major step forward that will end insider dealing and pump and dump schemes. A requirement for official white papers for traded coins with various disclosure obligations will also increase transparency. Similarly, the standard it sets for CASPs as regulated entities will protect customer funds in cases of insolvency.”
However, Peslar sees room for improvement in the current update, adding: “There are areas of the bill that could benefit from further consultation and engagement with industry stakeholders. For example, decentralised stablecoins will be banned by MICA from trading on centralised exchanges in the EU, and effectively only the largest financial service companies could comply with their onerous financial obligations to become stablecoin issuers, which will stymie innovation in the sector.
“Whilst decentralised finance (DeFi) and NFTs are out of MICA’s scope, there is a broad agreement that these areas will be regulated through specialised laws at a later date. However, for NFTs, if they are fractionalised or part of a collection, they will not be excluded from MICA, because of a ‘high degree of fungibility’.
“It’s kind of a hiccup, but it could be corrected in the technical work. EU lawmakers should address these areas with great humility in the future so that innovation can flourish.”
Victor Fredung, CEO of the identity verification service provider Shufti Pro, affirms the comments of Peslar, by underscoring its ability, or lack thereof, to effectively eradicate crypto scams.
Fredung comments: “Within the last few years, cryptocurrencies have taken centre stage in the world of finance, offering new opportunities for consumers. But they also bring potential threats, including money laundering, terrorism funding, fake identity fraud, account takeover fraud and financial fraud.
“While this new legislation is a welcome step in the direction of protecting investors against some of the risks associated with the investment in crypto-assets, it isn’t likely to completely eradicate cryptocurrency scams.
“To ensure compliance, crypto firms will be responsible for monitoring their transactions in order to detect attempts to perpetrate crimes. Because criminals may be able to conceal their identities and shift funds swiftly between accounts by taking advantage of the anonymity and speed of cryptocurrency services, the screening of customer identities is key to preventing these risks, especially in the areas of anti-money laundering (AML) and know your customer (KYC).
“In practice, this means that crypto firms should conduct risk assessments on their consumers and implement practices to verify that the assessment is correct. This includes processes such as identity verification, document authentication, and more – all of which can be easily implemented through third-party Identity verification service providers.
“These IDV providers ensure that companies stay compliant by utilising AI-powered technologies. The same solutions can also be used for AML compliance to automatically screen every onboarded customer against global sanctions, criminal watch lists, and politically exposed persons (PEP) lists.”