Paris, 10 October 2022 – The European Parliament approved today in committee the final versions of the Markets in Crypto-assets Regulation (MiCA) and the revised Transfer of Funds Regulation (TFR) that were presented on 5 October by the Committee of Permanent Representatives of the Council of the European Union (COREPER). While further clarifications are still needed, these Level 1 texts are a step towards unifying the framework applicable to crypto-asset market participants in the EU.
MiCA and TFR, policy visions finally taking shape
The two regulations are the product of long months of negotiations under the French and then the Czech presidency of the Council of the European Union, to harmonise the rules within the European crypto-asset markets. The Union’s objective is clear: to better protect the citizens of the European Economic Area while effectively combating financial crime.
With MiCA and TFR, Europe has thus adopted a regulatory framework entirely dedicated to this new asset class and, sometimes even going beyond the recommendations of the Financial Action Task Force (FATF), extends the traceability and identification requirements (“travel rule”) to transfers of crypto-assets.
A half-tone transcription of European ambitions in the field of crypto innovation
The adoption in committee of the MiCA and TFR texts removes suspense and uncertainty from an industry eager to see how the provisional political agreements reached earlier this summer would be translated into reality.
The industry is satisfied that the drafting is in line with the political vision presented by the European institutions on a certain point. Thus, the emergence of decentralised finance (DeFi) in Europe should remain possible at this stage; this part of crypto-assets has indeed been excluded from the scope of MiCA pending a report from the Commission in the coming months. Similarly, the requirement for issuers and service providers to inform their customers about the climate impact of the consensus mechanisms used is considered proportionate by the industry. This new obligation will effectively associate crypto companies with the EU’s environmental objectives. Finally, the application of the travel rule will remain limited to transfers of crypto-assets involving a regulated service provider and will not impose information sharing for peer-to-peer transfers between two European citizens.
However, the technical transcription of the political agreements raises concerns in the industry on key topics. Thus, while most non-fungible tokens (NFTs) were supposed to be excluded from the scope of MiCA, (thus recognising that they do not constitute a homogeneous financial asset class), new clarifications have considerably reduced the scope of this exclusion (notably by catching up with the so-called broad collections and series of NFTs). Also, algorithmic stablecoins will not be able to benefit from the exemptions granted to DeFi, as the EU co-legislators wrongly deny the existence of such decentralised crypto-assets. Also, when providing crypto-asset services linked to stablecoins, players will be prohibited from granting interest.
Finally, Adan regrets that despite numerous concerns, the industry has not been heard on fundamental issues for the development of the sector in Europe. These include: increased rigidity of the stablecoin regime (while US entities are already issuing crypto euros in our place); the preservation of reverse solicitation for crypto markets opening a loophole in favour of non-compliant foreign players; an extension of the scope of the travel rule to transactions as of the first euro and to those between platforms and private wallets; and the systematic verification of information about self-hosted wallet holders for transactions over €1,000.
“MiCA and TFR are intended to encourage the industry’s structuring and the adoption of crypto innovation by European citizens while ensuring their protection. These two pillars of European regulation of crypto markets will work in part to build an environment of trust conducive to these ambitions. However, despite the industry’s concerns and alternative proposals, some provisions will remain obstacles to both the effectiveness of these regulations and the competitiveness of our companies, “, warns Faustine Fleuret, President of Adan.
MiCA and TFR, the first stones of the regulatory edifice for crypto-asset markets
While the path to European regulation of crypto markets is set, there is still a long way to go until the two regulations are published in the Official Journal of the EU (OJEU) in early 2023 and come into force between 12 and 18 months later.
In the meantime, Adan is calling for some clarifications so that companies can comply with the new rules. The technical texts should, among other things, clarify the operational implementation of the travel rule for self-hosted wallets and define what constitutes an active solicitation of customers. The association hopes that the upcoming 2nd level texts and reports will address players’ concerns and restore competition with foreign players.
“As the industry’s representative in Europe, Adan will maintain a dialogue with public institutions and will remain a force of proposal for an adapted evolution of the regulatory framework applicable to crypto-assets,” adds Faustine Fleuret.
Adan (Association for the Development of Digital Assets) brings together professionals in digital assets and blockchain technologies in France and Europe. Its members cover a wide range of activities: markets, custody, payments, management, analysis tools, project and user support and IT security. Adan’s mission is to promote the development of the industry in the service of a new digital economy. To this end, the Association has technical and regulatory expertise in the digital asset sector and maintains a close dialogue with public authorities and industry associations.
Faustine Fleuret, CEO – [email protected]
Mélodie Ambroise, Head of Strategy and Institutionnal Relations – [email protected]
Hugo Bordet, Regulatory Affairs Manager – [email protected]
Site : https://adan.eu
Twitter : @adan_asso