On June 30, the European Union (EU) provisionally agreed on a regulation of cryptocurrencies. Over the next few months, EU policymakers will work out final details, but according to Caroline Malcolm, Head, International Public Policy & Research at blockchain data platform Chainalysis, these rules are good news for the blockchain industry. cryptocurrency.
What are the key elements of the agreement soon to be signed by the European Union on cryptocurrency regulations?
We don’t have all the details of the deal yet, some will be finalized in the coming months. However, some aspects are already known.
To sum up, this agreement concerns two elements: transfers of funds (Transfer of Funds Regulation or TFR) and crypto-asset markets (Markets in Cryto Assets or MiCA). The TFR establishes EU-wide rules for applying the “Travel Rule”. This rule requires cryptocurrency companies to identify the originators and beneficiaries of transactions exceeding a certain monetary value. In this regard, the new regulations provide for:
– Set to 0 € the amount from which transfers are subject to the travel rule. Some countries like France have already defined this threshold of €0, meaning that the exchanges operating there have already had to comply with this requirement.
– Request and verify the identity of the owner of the personal wallet, only once, during the first transfer of more than €1,000 between a cryptocurrency company and a personal wallet.
For transfers between a cryptocurrency business and a third party’s personal wallet, businesses will need to collect personal wallet information. Thus, before transferring the assets, the company must identify and assess the risk presented by the portfolio, and apply risk mitigation measures accordingly.
As for the MiCA regulation, this defines the licensing regime for cryptocurrency businesses in the EU. It implies in particular that:
– Cryptocurrency companies no longer need authorization from each EU country to operate in the EU.
– Cryptocurrency businesses are held liable for customer losses resulting from hacks or preventable operational failures.
– Companies, in particular token issuers, must declare as much information as possible on their environmental and climate impact.
The MiCA regulations will establish additional rules for specific types of cryptocurrency businesses. What are they ?
Yes quite. These rules concern in particular the issuers of stablecoins (or stable currencies), which will be supervised by the European Banking Authority, and which will include a mandatory redemption right, a physical presence in the EU and mandatory reserves establishing an adequate minimum liquidity. Specific rules will also be applied to certain types of these stablecoins, in particular “asset-referenced tokens”, i.e. tokens whose reference value is a basket of several currencies or any other value (for example, fiat currency, cryptocurrency, commodities or a combination of these assets) and “e-money tokens” (tokens backed by a single fiat currency).
According to European parliamentarian Ernest Urtasun, the agreement envisages a strict cap on the use of stablecoins. He explains that “big” stablecoins – it’s not yet clear what types of stablecoins are affected, but can be expected to include mainstays like Tether and USDC – will be limited to 200 million. euros in trading volume per day. It is not yet clear whether the cap will apply to all trading activities or only trading activities related to the EU market such as stablecoin transactions made by European residents. Regardless of how it will be enforced, such a cap would dramatically change the way stablecoins are used. For the record, as of July 1, 2022, Tether’s 24-hour transaction volume was $53.5 billion worldwide.
In your opinion, is this new TFR and MiCA regulation good news for the cryptocurrency market in Europe?
Absolutely. First, the draft MiCA text establishes some of the world’s first explicit rules aimed at defining and prohibiting specific forms of market manipulation of digital assets such as insider trading or “wash trading”.
It is possible that cryptocurrency companies and users will oppose certain aspects of the European agreement. But whatever the challenges, this agreement brings to the sector something it has long lacked: clarity. One of our reports showed that Europe is among the biggest markets in the world when it comes to cryptocurrency adoption; this agreement will therefore now establish clear rules of engagement for cryptocurrency companies, which will no longer have to worry about the particularities of each EU member state. The EU agreement will also likely serve as a benchmark for future regulation in other jurisdictions.
Any final advice for the industry?
This agreement is an important first step, but certainly not the last. The MiCA does not yet provide regulations for DeFi protocols, although rules are expected to be developed within 18 months of MiCA coming into force, scheduled for December 2022 or early 2023. The MiCA may still provide some rules for NFTs and marketplaces that have a higher degree of fungibility since they are split or part of a collection. In this case, marketplaces (i.e. trading venues) offering these types of NFTs would be required to obtain authorization under the MiCA.
As the details of these regulations will be finalized and implemented over the coming months, we stand ready to support both regulators and our private sector partners by providing them with our most comprehensive cryptocurrency data as well as our better compliance tools to ensure our industry can continue to grow and thrive in a sustainable way.
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Interview | Chainalysis: new EU regulations on cryptocurrencies
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