Officials from the European Union (EU) have agreed on a landmark law that will make life tougher for crypto issuers and service providers under a new single regulatory framework.
Stefan Berger, European Parliament member and rapporteur for the MiCA regulation — the person appointed to report on proceedings related to the bill — broke the news on Twitter saying that a “balanced” deal had been struck, which has made the EU the first continent with crypto-asset regulation.
MiCA Trilog: Durchbruch! Europa ist der erste Kontinent mit einer Krypto-Asset Regulierung. Parlament, Kommission & Rat haben sich auf ausgewogene #MiCA geeinigt. Für mich als Berichterstatter war wichtig, dass es hier keine Verbannung von Technologien wie #PoW gibt /1
— Stefan Berger (@DrStefanBerger) June 30, 2022
Known as the Markets in Crypto-Assets (MiCA) framework, the provisional agreement includes rules that will cover issuers of unbacked crypto assets, stablecoins, trading platforms, and wallets in which crypto-assets are held, according to the European Council.
Bruno Le Maire, French Minister for the Economy, Finance, and Industrial and Digital Sovereignty claimed the landmark regulation “will put an end to the crypto wild west.”
Stablecoins hobbled
In the wake of the dramatic collapse of TerraUSD, the MiCA regulation aims to protect consumers by “requesting” stablecoin issuers to build up a sufficiently liquid reserve.
In a Twitter thread, Ernest Urtasun, a member of the European Parliament, explained that reserves will have to be “legally and operationally segregated and insulated” and must also be “fully protected in case of insolvency.”
It will see a cap on stablecoins of 200 million Euros in transactions per day.
3/13 Large stablecoins will be subject to strict operational and prudential rules, with restrictions if they are used widely as a means of payment, and a cap of 200€millions in transactions/day.
— Ernest Urtasun (@ernesturtasun) June 30, 2022
Crypto Twitter users have already branded the regulation as unworkable, with 24-hour daily volumes of Tether (USDT) at $50.40 billion (48.13 billion Euros) and USD Coin (USDC) at $5.66 billion (5.40 billion Euros) at the time of writing.
There would also be difficulty enforcing these rules for decentralized stablecoins, such as DAI.
The agreement came on the same day as Circle’s launch of its Euro-backed stablecoin — Euro Coin.
As @circlepay brings #EUROC online, a Euro-backed digital currency, we aim to make this a trusted, well-regulated and MICA-conforming innovation. https://t.co/mroCxMCxfs
— Dante Disparte (@ddisparte) June 30, 2022
Consumer protections
Crypto-asset service providers (CASPs) will be required to adhere to strict requirements aimed at protecting consumers, and can also be held liable if they lose investors’ crypto-assets.
Urtasun explained that trading platforms will be required to provide a whitepaper for any tokens that don’t have a clear issuer, such as Bitcoin, and they will be liable for any misleading information.
There will also be warnings for consumers about risks of losses associated with crypto assets and rules on fair marketing communications.
Market manipulation and insider trading is also of focus, according to a statement from the European Council:
“MiCA will also cover any type of market abuse related to any type of transaction or service, notably for market manipulation and insider dealing.”
The new sheriff: ESMA
The provisional agreement will also see crypto-asset service providers (CASPs) needing authorization in order to operate in the EU, with the largest CASPS to be monitored by the European Securities and Markets Authority (ESMA).
ESMA is an independent securities markets regulator in the EU, which was founded in 2011.
The new law does not include a ban on proof-of-work technologies or include non-fungible tokens (NFTs) within its scope.
However, in regards to NFTs, the European Commission said it will be looking into this over the next 18 months and could create a “proportionate and horizontal legislative proposal” to address emerging risks of the market if it deems necessary.
Related: Coinbase seeking aggressive European expansion amid crypto winter
“Europe’s upcoming crypto-assets policy framework will be to crypto what GDPR was to privacy,” added Circle’s Disparte.
The provisional agreement is still subject to approval by the Council and the European Parliament before headed for formal adoption.