In order to issue and sell digital coins in the European Union, companies dealing with cryptocurrency will now require a licence and client safeguards under pioneering new laws approved by the EU to tame a volatile “Wild West” industry.
Globally, crypto assets are generally unregulated, with national operators in the EU simply obliged to demonstrate anti-money laundering safeguards.
Representatives from the European Parliament and EU member states reached an agreement late Thursday on its Markets in Crypto-assets (MiCA) legislation.
“Today we put order in the Wild West of crypto assets and set clear rules for a harmonised market,” said Stefan Berger, a German centre-right lawmaker who led negotiations.
“The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act,” Berger said.
The collapse of the terraUSD stablecoin and the halting of withdrawals and transfers by prominent crypto businesses Celsius Network and Voyager Digital this year have resulted from investor concerns about rising interest rates.
Bitcoin, the most valuable token, has fallen around 70% since its November high of $69,000, driving down the total market.
According to EU nations, the major rule confirms the EU’s role as a standard-setter for digital concerns.
“Crypto-asset service providers will have to respect strong requirements to protect consumers’ wallets and become liable in case they lose investors’ crypto-assets,” they added.
To become legislation, the new law will need to be formalised by the European Parliament and EU member states, followed by a period of implementation.
It provides crypto asset issuers and providers of related services with a “passport” to serve clients across the EU from a single location.
Holders of stablecoins, a sort of cryptocurrency meant to maintain a consistent value, will be granted a claim at any time and at no cost by the issuer, with all stablecoins overseen by the EU’s financial authority.
The restrictions, according to Robert Kopitsch, secretary general of the Blockchain for Europe lobby organisation, which includes major exchanges Binance and Crypto.com, are “a mixed bag,” and the group fears “that stablecoins would practically have no options to be successful.”
Coinbase Worldwide Inc, a prominent global cryptocurrency exchange, said in a blog post on Friday that the entire new framework was “exciting,” offering regulatory clarity to the market and boosting industry standards.
“A harmonized single set of rules for the entire EU will enable us to invest, accelerate, and scale our growth efforts across the entire bloc.”
The guidelines, according to AFME, will eliminate fragmentation and support the establishment of a healthy and well-functioning market.
More clarity is needed, however, to ensure that custodians of crypto assets are only liable for carelessness or misbehaviour, and not for events beyond their control, such as a nation state hack, according to AFME.
Many jurisdictions have long been averse to incorporating non-fungible tokens (NFTs), which are digital assets that represent anything ranging from art to films.
However, in response to criticism from EU MPs, Thursday’s agreement provides for the exclusion of NFTs “unless if they fall under established crypto-asset classifications.”
Within 18 months, Brussels will determine if separate laws for NFTs are required.
National regulators will be in charge of licencing crypto businesses, but they must keep the EU’s securities watchdog, ESMA, updated on significant operators. ESMA will create guidelines for cryptocurrency companies to provide information about their environmental and climate footprint.
The United States and the United Kingdom, two key crypto hubs, have yet to implement such regulations. Circle, the startup behind the popular USD Coin stablecoin, described the guidelines as a “important milestone.”
“While no comprehensive body of rules is perfect … it nonetheless provides practical solutions to issues that other jurisdictions are just beginning to grapple with,” it wrote in a blog.
(Adapted from BusinessToday.in)