December 2, 2023

The Marketplace in Cryptoassets (MiCA) is the EU’s first attempt to develop comprehensive regulation for digital assets.

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Lawmakers in the European Parliament have approved the world’s first comprehensive rules aimed at regulating the cryptocurrency industry.

The European Parliament voted 517 in favor and 38 against in a vote on Thursday to pass the Cryptocurrency Markets Act, or MiCA. The legislation aims to reduce the risk for consumers buying crypto assets, which will mean that suppliers will be liable if they lose investors’ crypto assets.

The EU Parliament said in a statement that the rules will impose a number of requirements on encryption platforms, token issuers and traders regarding transparency, disclosure, authorization and monitoring of transactions. statement Thursday.

Platforms will be required to inform consumers of the risks associated with their operations, while sales of new tokens will also be regulated.

Stablecoins like Tether and Circle’s USDC will be required to maintain sufficient reserves to meet redemption requests in the event of large-scale withdrawals. Stablecoins that have grown too large also face a transaction limit of 200 million euros ($220 million) per day.

The European Securities and Markets Authority (ESMA) will have the power to step in and ban or restrict crypto platforms if they are deemed unable to adequately protect investors, or threaten market integrity or financial stability.

MiCA also addresses environmental concerns surrounding crypto, with companies being forced to disclose their energy consumption and the environmental impact of digital assets.

Mairead McGuinness, EU Financial Services Commissioner, Approval of law lauded Thursday And said she wanted the rules to apply “from next year onwards”.

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Andrew Whitworth, head of EMEA policy at blockchain firm Ripple, said the parliamentary approval marked “an important milestone for the global crypto industry”.

Whitworth told CNBC via email: “Consistency implemented across the EU will be key to providing crypto companies with operational clarity to drive innovation across Europe and prevent unwitting fragmentation of the single market.”

“As part of this, there is a need to ensure that legislation is applied proportionally to how different companies’ crypto products are treated, based on the risk profile of different companies’ activities.”

one step ahead of us

Transfers between exchanges and so-called “self-hosted wallets” owned by individuals are required to be reported if the amount exceeds the 1,000-euro threshold, a contentious issue for crypto enthusiasts who often trade digital currencies for privacy reasons .

Changpeng Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, said in a tweet that his company is “preparing to make adjustments to our business in the next 12 to 18 months to be fully compliant.”

Binance is under intense scrutiny from regulators for how it operates. In March, the Commodity Futures and Trading Commission sued Binance, Zhao, and Binance’s former chief compliance officer Samuel Lim, accusing the company of actively soliciting U.S. users without a license.

Zhao praised MiCA as “a pragmatic solution to the challenges we all face”.

Regulators have attempted to rein in the cryptocurrency market following numerous disastrous industry failures. In May, controversial stablecoin project terraUSD ceased fire at $60 billion after investors lost confidence in its technical foundations.

The demise of terraUSD set off a chain reaction across the industry, with multiple other firms including Three Arrows Capital, BlockFi, and Voyager Digital going bankrupt. FTX, once the fourth-largest cryptocurrency exchange, filed for bankruptcy in November, the most high-profile collapse in the cryptocurrency industry to date.

The move puts the EU one step ahead of the U.S. and U.K., which have yet to enact formal rules for the crypto space. Specific encryption regulations could come into effect within a year or so, a U.K. official said Monday.

Once the EU law takes effect, cryptocurrency firms will be able to use their licenses in one European country to “pilot” their services between member states. Cryptocurrency firms have been scrambling to secure licenses from various European authorities and open new offices in anticipation of the laws taking effect.

Cryptocurrency exchanges Coinbase and Kraken recently received virtual asset service provider licenses in Dublin. Blockchain company Ripple is seeking permission from the Central Bank of Ireland.

Coinbase CEO Slams SEC, Considers More Investing Outside US

U.S. cryptocurrency firms have been looking to expand overseas in response to strict regulatory moves in their home countries. Last month, the SEC issued a Wells notice to Coinbase, usually one of the final steps before regulators formally issue charges.

Coinbase CEO Brian Armstrong told CNBC at a fintech event on Thursday that the company is preparing for a “year-long” legal battle with the SEC.

In a speech on stage, he said separately that the U.S. “has the potential to become an important market for cryptocurrencies,” but does not currently offer regulatory transparency. If that continues, Coinbase will consider options for investing more overseas, including relocating from the U.S., he said.

– CNBC’s Arjun Kharpal contributed to this report

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