Cryptocurrencies, stablecoins, NFT… what the European MiCa and TFR regulations must change

Cryptocurrencies have experienced a boom in recent years. And with them, a multitude of projects and companies have emerged. This abundant ecosystem is still poorly regulated in the world. The European Union (EU), however, will give birth to a first regulatory framework, which could serve as an example for other nations. On October 10, the MiCA (Markets in Crypto-Assets) and TFR (Transfer of Funds Regulation) texts were definitively adopted by the European Parliament’s Committee on Economic and Monetary Affairs.

They must establish a set of rules within the European Union, with which brokers and platforms offering services related to crypto-assets will have to comply. A framework likely to reassure savers and strengthen the security of their investments in this new class of assets, regularly targeted by crooks and hackers. The publication of TFR and MiCA in the Official Journal of the EU is scheduled for early 2023, before entry into force between 12 and 18 months later, therefore not before 2024.

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Here are the key points to remember from these two texts, which should still be accompanied by technical details on the operational implementation of certain measures.

Establishment of an accreditation at European level

MiCA will require brokers and exchange platforms offering crypto-assets to have CASP approval, acronym for “Crypto Asset Service Provider”, in order to operate within the Union. This new status will allow brokers and platforms actually approved to benefit from a European passport, which will give the possibility of offering its services and promoting them in the 27 member countries.

In France, PSAN registration and accreditation, for “digital asset service provider”, has already been implemented by the Pacte law of 2019. Today, more than fifty players are PSAN registered with the Financial Markets Authority (AMF), but none yet has approval.

However, “the status of CASP at European level is closer to approval than to PSAN registration”, underlines Hugo Bordet, head of regulatory affairs at Adan, lobby of the crypto sector in France. “Several requests for approval should nevertheless succeed in the coming months”, he confides.


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In addition to the implementation of a system to fight against money laundering and the financing of terrorism, already provided for in the framework of the PSAN registration in France, the actors seeking CASP authorization will have to demonstrate a resilient and secure IT system, present a clear pricing policy and a customer information system, in particular concerning the risks associated with investing in crypto-assets. They will also be required to have a sufficient level of capital.

Finally, the good repute and experience of the leaders will be subject to checks by financial regulators, as is already the case for brokers and platforms registered PSAN. These are all points that should bring more security and transparency to savers.

Inform about the environmental footprint of crypto-assets

CASP players will also have to provide their clients with details of the environmental footprint of the various crypto assets. The ban on proof of work was ultimately not retained in MiCA. This mechanism, closely linked to the mining process, is necessary for the validation of transactions for certain cryptocurrencies such as bitcoin. It also requires a large amount of electricity to operate.

The CASPs will have to explain its impact on the environment and probably the energy mix used, via clear and non-misleading information, accessible to the customer who wants to buy bitcoin. Regardless of the cryptocurrency, the same transparency will be required. Information will have to be provided on each computer protocol, like the labeling of washing machines on their energy consumption.

The problem is that there is no established consensus on the footprint of the different cryptocurrencies, starting with the first of them, bitcoin. “There is a lot of data on bitcoin, but not yet sufficiently precise”, underlines Hugo Bordet, when they are not questioned. And for other blockchains operating with proof of work, on which cryptocurrencies such as the Litecoin and Dogecoin, data may be missing, not to mention even more confidential digital tokens.

This is why details are still awaited from the European Commission, which will present a report on the environmental footprint of crypto-assets to the European Parliament and the Council of the EU within a few months.

Exchange of information on platform customers for each transaction

As part of a cryptocurrency transaction, future CASPs will be required to share information on the originator as well as the beneficiary of the transfer of crypto assets. A measure provided for this time in the TFR text and intended to better fight against money laundering and the financing of terrorism.

The information exchanged between two CASPs involved in a transaction will include:

  • for the CASP of the principal: the surname and first name of this client, the address of his electronic wallet, his client account number, his postal address, his passport number or his identity card;
  • for the CASP of the beneficiary of the transaction: the name and surname of the beneficiary, the address of his wallet, his account number. The customer’s address and identity document are therefore not communicated here.

In the event of an infringement detected, the CASPs will be required to report to the authorities, in this case the Tracfin intelligence service in France.

This rule also applies to “traditional” fund transfers via banks, but only for transactions of at least 1,000 euros, when no threshold is set for crypto-assets. “For players in the crypto sector, there is therefore more red tape, which leads to compliance costs,” says Hugo Bordet.

Furthermore, if a transaction is carried out on a platform that does not guarantee compliance with European legislation on the protection of personal data (GDPR), the broker or the client’s platform may refuse to share information or even block the cryptocurrency transfer. A first, which still remains to be confirmed and clarified by the European authorities.


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Identity verification of self-hosted wallet owners

Regarding peer-to-peer transactions, from electronic wallets to others held directly by the owners of crypto-assets (“self-hosted wallets”, such as those of the Ledger brand), they are not subject to no transmission of information or checks.

On the other hand, when an intermediary is involved, whether for the originator or the beneficiary of the transaction, the broker or the platform concerned must systematically check several pieces of information relating to the holders of the self-hosted wallet (or private), if the amount of the transaction is greater than 1,000 euros.

For example, if a cryptocurrency transaction order for an amount of 1,001 euros is issued from a broker to a private wallet, the identity of the holder of this wallet will be requested by the broker. The modalities for the concrete application of this measure remain to be defined. Today, a self-hosted wallet can be created without needing to provide identity or address. This new rule would therefore imply having to reveal personal information to an intermediary.

European players fear “reverse solicitation”

Moreover, the MiCA text does not provide for the prohibition of “reverse solicitation”, which could be translated as a form of passive marketing. Foreign players not registered within the European Union are prohibited from soliciting customers or promoting their products on the continent. On the other hand, European savers can turn directly to them, without initial solicitation on their part.

In this case, no prohibition is foreseen. A French or Portuguese investor, for example, can buy cryptocurrencies and subscribe to online services from the American platform Kraken, which is not regulated in Europe.

This reverse solicitation “opens a breach in favor of non-compliant foreign players”, considers Adan, which sees an asymmetry with the obligations imposed on future European CASPs.

DeFi and NFT excluded from MiCA, but not stablecoins

MiCA does not regulate everything about crypto-assets. Decentralized finance (DeFi), which refers to all financial applications developed on blockchain technology, is excluded from this text. It must later be the subject of a report by the European Commission to determine the axes of regulation.

Similarly, non-fungible tokens, better known by their acronym NFT, remain generally excluded from the MiCA regulation. But legal uncertainty remains on large collections or series of NFTs, which could potentially fall under this text.

Finally, the issuance by European players of new stablecoins, these cryptocurrencies backed by the price of a currency such as the dollar or the euro, will be very supervised. And the creation of a euro stablecoin may be vetoed by the European Central Bank, which is experimenting with its own electronic money and wants to retain some control over this type of asset to remain sovereign.

As for algorithmic stablecoins, which operate more complex and often decentralized, they have been overtaken by MiCA. They will not benefit from the exemptions granted to DeFi. CASP platforms and brokers will be prohibited from granting interest for services related to stablecoins, whether algorithmic or not. Cryptocurrency lending services, which sometimes work with stablecoins, are however not affected by this measure and are explicitly authorized by MiCA.

The weak guarantees offered by certain algorithmic stablecoins like Terra, whose price completely collapsed in the spring, prompted European institutions to legislate. While much remains to be done to regulate crypto-assets, their uses and players in the sector, European savers should benefit from a more reassuring and secure framework thanks to the TFR and MiCA regulations.


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Cryptocurrencies, stablecoins, NFT… what the European MiCa and TFR regulations must change

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