The EU reaches a historic agreement to regulate cryptocurrencies

Europe wants the Crypto Asset Markets (MiCA) regulation to protect investors and establish strict rules for 'stablecoin' issuers.

The European Union has reached a historic agreement on legislation to regulate crypto assets and service providers in all member countries of the bloc.

The European Commission, EU lawmakers and member states reached an agreement this Thursday in Brussels after almost 2 years of debates on the framework of crypto assets. The pact comes a day after talks aimed at cracking down on cryptocurrency money laundering in the European conglomerate ended.

The landmark law, known as the Markets in Crypto Assets (MiCA), is designed to simplify the cryptocurrency market, including exchanges and issuers of so-called 'stablecoins', which are cryptocurrencies pegged to the value of an asset such as sovereign currencies. , like the euro. The new regulations come at a crucial time for digital assets, with Bitcoin facing its worst quarter in more than a decade.

Risks related to crypto assets

• Under the new rules, crypto asset service providers will have to adhere to strict requirements to protect consumers' wallets and will be held liable if they lose investors' crypto assets. The MiCA will also cover any type of market abuse related to any type of transaction or service, especially with regard to market manipulation and insider trading.
• Likewise, the MiCA law will also address the environmental issues surrounding cryptocurrencies, forcing companies to disclose their energy consumption and the impact of digital assets on the environment.

A solid framework for 'stablecoins'

    The MiCA law will protect consumers by requiring stablecoin issuers to set up a sufficiently liquid reserve, at a 1/1 ratio and partly in the form of deposits. Likewise, the issuer will offer all holders of the 'stablecoin' the possibility of claiming them at any time and free of charge. The rules that regulate the operation of the reserve also contemplate an adequate minimum liquidity. Furthermore, all so-called 'stablecoins' will be supervised by the European Banking Authority (EBA).

Crypto asset service providers

• Acording to the provisional agreement reached, crypto asset service providers will need an authorization to be able to operate in the EU. The national authorities must issue the authorizations within three months.
• Non-fungible tokens (NFTs), which represent ownership of digital goods such as art, were left out of the proposals. The European Commission has been commissioned to determine whether NFTs require their own regime within 18 months.

"Today we bring order to the 'Wild West' of crypto assets and establish clear rules for a harmonized market that will provide legal certainty for issuers of crypto assets, guarantee equal rights for service providers and ensure high standards for consumers and investors," Stefan Berger, the lawmaker who led the negotiations on behalf of the European Parliament, told CNBC.

The MiCA law was originally introduced by the European Commission in September 2020 in an attempt to tackle a series of cryptocurrency fundraising projects called Initial Coin Offerings (ICOs) that often turned out to be bogus. The law needed the approval of EU governments and legislators to pass, which has already happened.

Overall, the MiCA law is the first attempt to create a comprehensive regulation for digital assets in the EU. The rules are expected to take effect from 2024, a landmark move that is expected to position the bloc ahead of other countries in enforcing laws tailored to the cryptocurrency market.