EU’s new crypto legislation: MiCA could make Europe the hub for digital assets

EU’s new crypto legislation: MiCA could make Europe the hub for digital assets

MiCA has been published in the official journal of the EU and signed into law. This marks the beginning of the countdown to the implementation in 27 EU member states.

Analysis

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On May 31, the European Union passed the Markets in Crypto-Assets Regulation, paving the way for the historic regulatory guidance to crypto assets and services providers.

The EU’s regulatory package, first drafted in 2020 will regulate the issuance of cryptocurrency and the scope of services.

The European Council approved the MiCA regulations after the European Parliament had passed them on April 20. The framework was signed into law on May 31 by the President of the European Parliament, Roberta Metsola , and Peter Kullgren from Sweden’s Rural Affairs Ministry . Sweden is currently the EU Council’s presidency.

The publication of MiCA in the Official Journal of the European Union, (OJEU), on June 9 triggered the countdown to the law’s implementation. MiCA has set deadlines for crypto businesses to comply with its requirements and implement them. The rules for stablecoins will be in effect from June 30th 2024 and the rules for exchanges on December 30th 2024.

MiCA defines crypto assets as “a digital representation or value or right that can be transferred or stored electronically using distributed ledger or similar technology.” It also provides guidance on what digital assets qualify as “cryptocurrencies,” and what makes them “tokens.”

MiCA also establishes standards that apply to crypto asset service providers (CASPs), and cryptocurrency asset issues. Crypto asset issuers are required to adhere to standards of disclosure and transparency, and provide complete and transparent information on the crypto assets that they issue. CASPs are also required to adopt security measures, and comply with Anti-Money Laundering Regulations.

CASPs are separate legal entities under the MiCA legislation. Service providers can get a license and do business in any of the EU’s 27 member states. The service providers will have to be able counter market manipulation and abuse and be under the supervision and regulation of regulators such as the European Banking Authority.

The white paper will contain key information about the product, the players in the stablecoin business and other important details. The whitepaper must also contain the terms of the offer, what kind of blockchain-based verification system it will be using, rights attached to the crypto assets involved, the risks for investors and a summary that can help potential buyers make an informed decision.

MiCA does not regulate digital assets that are transferable securities or behave as shares or equivalents. The EU legislation excludes non-fungible tokens or crypto assets that are already recognized under existing law as financial instruments.

MiCA does not regulate digital assets issued by central banks, whether it is the digital currency of the European Central Bank, digital assets issued by national central banks, or services related to crypto assets offered by these institutions.

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David Schwed is the head of Halborn, a blockchain cybersecurity company. He told Cointelegraph MiCA was a significant development that demonstrated that a comprehensive regulatory framework could be created to give clear direction to certain market segments. He said that although MiCA excludes some aspects of crypto such as NFTs, decentralized finance and other forms of crypto, it is still a major step forward.

This regulation represents a major step forward in the crypto-community. It sets a standard for all EU members, a precedent I hope the rest of world will consider and take note of,” Schwed said.

Europe leads the crypto-leadership

Nearly two years after their first proposal, the MiCA regulations have been passed into law. This has brought some clarity to the cryptocurrency business in Europe. Crypto companies are now able to access the market and adhere to a set of guidelines, even if they’re not perfect.

Europe, which has no set laws and is increasingly enforcing its law against crypto exchanges in comparison to the United States could be a dominant crypto hotspot.

Binance CEO Changpeng Zhao said that the introduction of MiCA has opened up exciting business opportunities in Europe for crypto service providers who comply with MiCA.

Zhao’s remarks came in response to the recent lawsuit brought by the U.S. Securities and Exchange Commission (SEC) against Binance and the CEO of the company, alleging violations of securities laws.

Kadan Stadelmann is the chief technology officer of open-source blockchain firm Kodomo. He told Cointelegraph, that while MiCA’s efficacy can be questioned, it’s unquestionable that MiCA lays the foundation for crypto regulation around the world.

“[Other nations] will likely choose to ‘wait-and-see’ before making their regulations.” The influence of MiCA is still clear. Most nations will be under pressure to adopt a regulation in order to not fall behind.

Alex Shevchenko is the CEO of layer-2 platform Aurora Labs. He told Cointelegraph how MiCA implementation could “potentially encourage policymakers and regulatory agencies in the U.S., to consider similar approaches that strike a balance between market development and consumer protection.” This could lead to greater collaboration and harmonization between jurisdictions.

Members of the U.S. House Financial Services Committee are currently drafting a bill to clarify laws for certain types cryptocurrencies, and bring stablecoins within the Federal Reserve’s regulatory jurisdiction.

Crypto laws around the world

While MiCA — for the moment — is a unique regulatory framework that governs certain crypto-activities in 27 countries. Several jurisdictions, however, have actively developed some form of crypto-legislation in recent years.

Joey Garcia is the head of regulatory affairs for Xapo Bank. He told Cointelegraph the MiCA framework was often compared only to the regulatory environment in the U.S. This, he believes, is a far too narrow comparison when viewed in the contexts of global, cross-border, and digital industries:

There are other jurisdictions. Singapore’s crypto regulation is very advanced, and Hong Kong’s framework went into effect on 1 June. Gibraltar, a smaller jurisdiction, has been regulating the crypto space since 2018. It developed frameworks and guidelines that address critical factors like market integrity for cryptocurrency trading platforms. This is much more comprehensive than MiCA.”

Garcia stated that the rest of world could learn from MiCA on how to adapt traditional financial services principles to the nascent technology. He also adds that regulators from outside the EU will need to develop their understanding of not only implementing standard, but being able monitor and supervise these businesses.

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Hong Kong is positioning itself as a crypto hub in the region, paving the way for independent legislation that’s separate from China’s blanket ban.

Stadelmann said that Hong Kong has a greater potential than Europe to be a crypto hotspot. Hong Kong had several growing crypto-startups before China banned them in 2021. He said that with greater regulatory certainty by 2023, he believes more crypto startups would consider Hong Kong as an option.