EU lawmakers approve world’s first complete crypto regulation

Markets in Crypto-Assets (MiCA) is the first attempt to create comprehensive regulation for digital assets in the EU.

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Lawmakers in the European Parliament have passed the world’s first comprehensive set of rules regulating the cryptocurrency industry.

In a vote on Thursday, the EU Parliament voted 517 in favor and 38 against to pass the Markets in Crypto Act, or MiCA. The legislation, aimed at reducing the risks for consumers when buying crypto assets, means providers can be held liable if they lose investors’ crypto assets.

The rules will impose a series of requirements on crypto platforms, token issuers and traders related to transparency, disclosure, authorization and monitoring of transactions, the EU parliament said in a statement on Thursday.

Platforms must educate consumers about the risks associated with their operations, while the sale of new tokens is also regulated.

Stablecoins like Tether and Circle’s USDC need to hold sufficient reserves to meet redemption requests in the event of bulk withdrawals. Stablecoins that grow too large will also be capped at 200 million euros ($220 million) in transactions per day.

The European Securities and Markets Authority (ESMA) will be given the power to step in and ban or restrict crypto platforms when they fail to adequately protect investors or threaten market integrity or financial stability.

MiCA also addresses environmental concerns related to crypto as companies are forced to disclose their energy use as well as the environmental impact of digital assets.

Mairead McGuinness, EU Commissioner for Financial Services, praised the passage of the law on Thursday and said she expected the rules to apply “from next year”.

Blockchain firm Ripple’s EMEA Policy Director Andrew Whitworth said the parliamentary blessing is “an important milestone for the crypto industry around the world.”

“Consistency in implementation across the EU will be key to providing crypto companies with the operational clarity to drive innovation across Europe and guard against unwitting fragmentation of the single market,” Whitworth told CNBC via email.

“As part of this, ensuring that legislation is applied proportionately to how different companies’ crypto offerings are treated, based on the risk profiles of their operations.”

One step ahead of the US

Parliament also passed a separate law aimed at increasing anonymity when transferring cryptocurrencies such as cryptocurrencies Bitcoin and stablecoins, which voted 529-29 to pass the money transfer regulation.

This applies to the so-called “travel rule,” which requires financial firms to verify, record, and transmit information on both the sender and recipient on crypto transactions to help fight money laundering.

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

In a tweet, Changpeng Zhao, CEO of the world’s largest crypto exchange Binance, said his company is “ready to make adjustments to our business over the next 12 to 18 months to be in a position of full compliance.”

How Binance works is under intense scrutiny by regulators. In March, the Commodity Futures and Trading Commission sued Binance, Zhao, and Binance’s former chief compliance officer, Samuel Lim, alleging that the company was actively soliciting US users without permission.

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

Regulators have sought to rein in the crypto market following numerous catastrophic industry failures. In May, terraUSD, a controversial stablecoin project, dissolved in a $60 billion flameout after investors lost faith in its technical foundation.

The demise of terraUSD set off a chain reaction in the industry, with various other companies including Three Arrows Capital, BlockFi and Voyager Digital also going bust. FTX, formerly the fourth-largest crypto exchange, filed for bankruptcy in November, marking the crypto industry’s most high-profile failure to date.

The move puts the EU a step ahead of the US and UK, which have yet to introduce formal rules for the crypto space. A UK official said Monday that specific crypto regulation could come into effect within a year or so.

Once EU laws come into effect, crypto companies will be able to use their licenses in one European country to “pass” their services in different member states. Crypto companies have been scrambling to obtain licenses from various European authorities and opening new offices in anticipation of the law taking effect.

Crypto exchanges Coinbase and Kraken recently received licenses for virtual asset service providers in Dublin. Blockchain company Ripple is seeking a license from the Central Bank of Ireland.

Coinbase CEO Slams SEC, Considers Investing More Outside US

US crypto firms have sought overseas expansion in response to tough regulatory measures in their home territory. The Securities and Exchange Commission issued a Wells notice to Coinbase last month, which is often one of the final steps before the regulator officially imposes fees.

On Thursday, Coinbase CEO Brian Armstrong told CNBC at a fintech event that the company was prepared for a “years-long” litigation with the SEC.

He said separately in an onstage presentation that the US “has the potential to be a major market for crypto” but is not providing regulatory clarity at the moment. If this continues, he said, Coinbase would consider options to invest more overseas, including moving from the US to other countries.

– CNBC’s Arjun Kharpal contributed to this report

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