Last week, Members of the European Parliament approved the one-of-its-kind EU legislation on crypto-assets, with 517 in favor and 38 against. The Markets in Crypto Act, or MiCA, provides an overall framework for regulating cryptocurrencies by prescribing requirements related to exchanges, crypto platforms, traders, and issuers with respect to disclosures, transparency, authorization, and various other things.
With the vote of the European Parliament, MiCA is on its way to becoming a comprehensive law on cryptocurrencies in 2024, thereby leaving the USA behind in the race to regulate these digital assets. The main provisions of this law will come into effect over twelve months after their publication in the official journal of the European Union. The idea of having legislation to regulate this sector will enhance the confidence of investors, which has gone down after a series of scams in the crypto industry, including the FTX collapse.
Having proper regulation in place will ensure that users are completely informed with respect to hidden risks associated with crypto assets and can make an informed decision after going through all the disclosures. Leading crypto companies like Ripple have expressed that this form of regulatory clarity is the need of the hour in a country like the USA. Read ahead as we discuss this legislative development in European and how countries like the USA can take inspiration from this legislation.
European Union Passes Law for Crypto Regulation
Under the MiCA, crypto platforms will be obliged to inform their users regarding the risks related to their operations, and transactions regarding new crypto tokens will also be covered by the regulation. The regulation has mandated the maintenance of sufficient reserves by the stablecoins like Tether and USDC for the settlement of redemption requests at the time of mass withdrawals.
There could also be a transaction cap of 200 million euros ($220 million) in case they are being dealt with in humongous volumes in the market. With this, it is expected that the MiCA will create a fine balance in the crypto sector that will make it easy for people to deal with and hold crypto assets and challenging for criminals and terrorists to use cryptocurrencies for illegal purposes.
Another law that has been passed by the European Parliament is the Transfer of Funds regulation, with the majority of 529 in favor and 29 against. The regulations require crypto operators to determine their clients with the purpose of stopping money laundering. Crypto platforms will be supposed to screen, document, and communicate details to both sender and receiver.
European Securities and Market Authority (ESMA) will be entrusted with enough powers to safeguard consumer interests, financial stability, and market integrity by banning or limiting the operations of crypto platforms if they are not in compliance with the provisions of this regulation. Many times, concerns have been raised regarding the adverse impact caused by crypto transactions on the environment by consuming loads of energy. In light of these environmental concerns regarding cryptocurrencies, regulations have made ensured that crypto companies are obligated to disclose their energy consumption along with the impact they are causing on the environment.
Step Ahead of USA
It is expected that the UK will also come with its comprehensive legislation on cryptocurrencies in a few months. This step will place UK and European Union ahead of the US. In the absence of crypto regulations, many prominent stakeholders, including Ripple’s Head of Public Policy, Susan Friedman, have reached out to policymakers to take inspiration from the regulatory approaches of the European Union and bring something concrete into action for regulating virtual assets.
USA’s approach to focus on enforcement rather than clarity is not sustainable in the long run. The time has now come when it has to take lessons from the sensible and progressive approach of the European Union toward crypto regulation. Given all these circumstances, it would be interesting to see whether the USA would come out with its own set of regulations or not.
