Markets in crypto assets regulation 2022: in EU

Future for digital assets web3

The Council presidency and the European Parliament agreed to a provisional agreement on the markets in cryptoassets (MiCA) proposal, to encompass issuers of unbacked cryptoassets, stablecoins, trading platforms, and wallets where cryptoassets are stored. While allowing for innovation and promoting the attractiveness of the crypto-asset sector, this regulatory framework will safeguard investors and maintain financial stability. This is expected to bring clarity in the European Union as a result, as some of its members have already passed national legislation governing crypto-assets, but there has not yet been a concrete regulatory framework at the EU level.

MiCA will help consumers avoid fraudulent schemes and protect them against some of the threats connected with investing in crypto-assets. Currently, consumers’ rights to protection and restitution are quite limited, for purchases are made outside of the EU.

With the new regulations, crypto-asset service providers will be held accountable if they misplace an investor’s cryptoassets and be subject to strict measures to safeguard clients’ wallets. Market manipulation and Insider Trading are essential to market abuse, which the MiCA will address.

  • Crypto-asset market players will have to provide information about their environmental and climate footprint.
  • Draft regulatory technical standards for the informational content, methodology, and presentation of the major downside environmental and climate-related impacts will be developed by the European Securities and Markets Authority (ESMA).

The European Commission will submit a study on the impact of cryptoassets on the environment within two years, as well as introduce minimum sustainability requirements for all consensus processes, including proof-of-work.

OBJECTIVES AND APPLICATION

Without the requirement of national implementation laws, MiCA will be applicable uniformly across the EU. This strategy ensures efficient and standardised access to the crypto-asset markets under a single market with consumer safety.

In the interim agreement, to conduct business within the EU, crypto-asset service providers (CASPs) will have to obtain a licence. Authorizations must be issued by national authorities within a three-month window. National authorities will periodically communicate pertinent data to the European Securities and Markets Authority with regard to the major CASPs (ESMA).

Except in cases where they fit under pre-existing crypto-asset categories, NFT, or digital assets which reflect real items like works of art, music, and films, will be excluded from the scope.

The four primary objectives of the markets in crypto-assets regulation are:

  • Creating efficient legal framework for the crypto assets not already covered by existing financial services legislation;
  • Support innovation and fair competition in order to promote the development of crypto assets;
  •  Protect consumers, investors, and market integrity against the risks;
  •  Ensure financial stability.

PROTECTION OF CRYPTO HOLDERS

  • MiCA will safeguard customers by requiring Stablecoin issuers to maintain a sufficient liquid reserve with a 1/1 ratio and partially in the form of deposits. 
  • The issuer will at all times and without charge make a claim accessible to Stablecoin holder, and the reserve’s operating regulations will guarantee a sufficient level of minimum liquidity.
  • European Banking Authority (EBA) will oversee all Stablecoins, with the presence of the issuer in the EU being a requirement for any issuance.
  • To protect monetary sovereignty, restrictions will be placed on the creation of asset-referenced tokens (ARTs) based on non-European currencies.
  • A registered office will be required of ART issuers.

To ensure adequate oversight and monitoring of public offerings of asset-referenced tokens, issuers of ARTs must maintain a registered office in the EU.

INDUSTRY IMPLICATIONS

Market players’ capacity to diversify their businesses by implementing a crypto-asset strategy will be impacted by the MiCA proposal. The regulation is likely to give formerly unregulated crypto-assets, as well as the service providers and, ultimately, the consumer, a unified legal framework with robust protections.

The Digital Operational Resilience Act (DORA) and the DLT Pilot Regime are a part of the European Commission’s digital finance agenda. Additionally, it is expected that market players may be required to follow certain ESG norms when using digital money.

CONCLUSION

With the official implementation of MiCA, all national crypto policies in EU member states will come to an end in favour of a unified, focused regulatory framework, making it easier and structured for EU crypto-asset service providers to operate across all EU markets. The decentralised financing (DeFi) and decentralised exchanges, have made it necessary for regulators and CASPs worldwide to communicate, effectively.

By the time MiCA ultimately enters the European Union in a few years, extensive regulatory crypto reforms might appear meek and standard by then. These adjustments are anticipated to be implemented across all Financial Action Task Force (FATF) members in response to its revised Standards.

This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Sources: BNP Paribas, CoinDesk

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