Following two years of work, the European Council presidency, and the European Parliament yesterday (June 30) reached a provisional agreement on the Markets in Crypto-Assets (MiCA) to bring crypto-assets, crypto-assets issuers, and crypto-asset service providers under a regulatory framework for the first time. This follows provisional agreement on June 29 to introduce measures to require cryptoassets service providers (CASPs) to provide identifying information on all digital asset transactions, under the so-called Transfer of Funds Regulation (TFR) legislation. Dr Gerald Hessenberger, Managing Principle at Capco, believes the landmark laws will set the standard for global crypto regulation to foster far greater consumer and investor protection:
“Yesterday’s agreement heralds a new dawn for the cryptocurrency industry, providing regulators with the tools to stamp down on potential money laundering and other illicit activities that have plagued the crypto market in recent years. All in all, these will reduce risks associated with crypto asset transactions for investors, traders, and service providers within the EU.
“The legislation is a particularly significant step in the right direction for the protection for consumers and investors. MiCA will be applicable to all utility, asset-referenced and e-money tokens and regulates all CASPs and financial institutions who wish to offer crypto services. Under the new framework, ESMA has powers to ban or restrict CASPs that fail to protect interests of consumers and investors or threaten market stability.
“TFR will enable greater fraud and money laundering prevention by extending the obligation of payment services providers to accompany transfers of funds with information on the payer and payee of crypto assets. The legislation serves as a supplement to existing rules to now include the previously uncovered product class of crypto assets. Users of unhosted wallets can also be assured that only large transactions greater than EUR 1000 will be subject to the regulation, so the P2P notion of blockchains as decentralized entities remains intact.
“Financial institutions who have previously been hesitant to offer crypto asset products will likely view the new legislations as a positive step that provides safer footing to enter the market. In contrast, TFR will place a far greater financial and administrative workload on CASPs. Financial institutions operating in the EU have operated in a comprehensive regulatory framework for significantly longer, and have the resources and operations in place to comply with the new regulation compared with CASPs and neobanks that are newer to the market.
“The financial burden on CASPs and the end to anonymity in even small sized crypto transactions could potentially cause an exodus from the EU to other regions such as Singapore, Japan or South Korea. However, the regulation is something that CASPs will ultimately have to embrace and prepare for.”
“Ultimately the agreement is a big step forward for crypto market regulation and sets the precedent for other regions to implement similar legislation.”
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