How do you deal with a problem like crypto?
While American regulators and lawmakers quibble over how to properly oversee the infamously tumultuous digital asset industry, the European Union (EU) Thursday (April 20) became one of the first jurisdictions in the world to actually introduce a comprehensive set of rules surrounding crypto assets and their use.
EU lawmakers voted 517-38 in favor of a crypto licensing framework, Markets in Crypto-Assets (MiCA), setting the stage to introduce tailored regulations for the crypto industry, centered around protecting users and supporting innovation, into one of the world’s largest and most mature market economies.
The EU Commissioner for Financial Services, Financial Stability and Capital Markets Union, Mairead McGuinness, called it a “world first” in a tweet.
The texts will now have to be formally endorsed by council before publication in the EU Official Journal. They will enter into force 20 days later and come into effect over the next two years, per a release announcing that MiCA had cleared its final parliament vote.
“This puts the EU at the forefront of the token economy,” said Stefan Berger, lead MEP for the MiCA regulation. “Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust.
“This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.,” he added.
MiCA’s unified regulatory framework for the 27-nation bloc will likely make the group of European nations more attractive to digital-asset companies, as well as put pressure on other jurisdictions to enact their own equivalent guardrails.
Read more: SEC Chair Gensler Defends Crypto Crackdown in Contentious House Hearing
A Tale of Two Futures
The U.S. has so far taken the approach of policing the crypto sector through a series of enforcement actions, which many industry actors have decried as opaque and unhelpful.
As reported by PYMTS, the Securities and Exchange Commission (SEC) has to date gone after several leading players in the industry including Terra, Coinbase, Kraken, Paxos and Binance, saying the crypto companies either offered customers products that were in effect illegal securities offerings, or violated investor protection laws.
“The SEC’s approach to the crypto economy [is] confusing, unclear, opaque, and ultimately blind to the harm its regulation by enforcement strategy is doing to lawful companies in this country,” Kristin Smith, CEO of the Blockchain Association, said.
During a congressional hearing Tuesday (April 18), SEC Chair Gary Gensler said that his agency has, “a clear regulatory framework built up over 90 years … [crypto firms] don’t have a choice. They’re noncompliant, generally, and they need to come into compliance.”
Making Europe Fit for Digital Age
“Parliament and council have found a fair compromise that will make it safer for people of good will to hold and trade crypto assets. However, it will make it more difficult for criminals, terrorists and sanctions evaders to misuse crypto assets. Any administrative burden on crypto companies and innovators will be more than offset by the fact that we are unifying the currently fragmented European market that has 27 regulatory regimes,” said Co-Rapporteur for the Civil Liberties, Justice and Home Affairs Committee Assita Kanko.
The EU’s MiCA framework will require any company providing crypto-related services to apply for regulatory approval in one of the bloc’s member states. If approved, that business will then be allowed to operate across the entire EU market.
MiCA’s text states that one of the legal framework’s “priority areas” is ensuring that the EU financial services regulatory framework is “innovation-friendly and does not pose obstacles to the application of new technologies,” adding that its goal is to make Europe fit for the digital age and to build a “future-ready economy that works.”
The European Banking Authority and the European Securities and Markets Authority (ESMA) will be in charge of making sure crypto platforms comply with the rules, including having adequate risk management and governance processes.
In a tweet, the ESMA called the legislation a “significant step towards ensuring robust protection for investors in the market for crypto-assets,” while going on to emphasize that “investing in crypto assets is a risky endeavor with limited safeguards at this stage.”
The European Parliament also voted 529-29 to pass a separate law targeting the crypto sector. Known as the Transfer of Funds regulation, the new bill will require crypto operators to identify their customers in a bid to halt money laundering, tracing crypto-based operations in the same way as traditional money transfers, which some industry observers have decried as effectively removing the anonymity that blockchain-based transactions were founded on.
