EU framework for crypto-asset markets: the French Presidency ends with political deals on MiCA and TFR
Paris, 1st July 2022 – On 29 and 30 June 2022, the European Parliament and the Council of the European Union reached provisional political agreements at the trilogue on two major pieces of regulation that will change the face of the European crypto industry: the Markets in Crypto-Assets (MiCA) regulation and the revised Transfer of Funds Regulation (TFR).
MiCA and TFR, two sides of the same coin towards the structuration of the crypto industry
The past two days marked a turning point in the crypto industry as the last deliberations on MiCA and TFR will probably shape tomorrow’s European crypto markets and accelerate the structuration of a safer environment for citizens willing to embrace innovation.
Indeed, with MiCA, Europe just created a regulatory framework completely dedicated to this new asset class. In parallel and as the Financial Action Task Force (FATF) recommended, transfers in crypto-assets will now have to comply with the traceability and identification proceedings (“travel rule”) required by the revised TFR .
With these two political agreements, which are a step towards harmonisation of rules within European markets, Brussels hopes to better protect its citizens while effectively fighting against financial crime.
“These key milestones are crucial for the industry in order to provide for legal certainty, ensure fair competition and facilitate expansion of their activity within the EU, but also for European citizens to help them grasp crypto-assets’ opportunities in a safe and comfortable environment” considers Faustine Fleuret, President of Adan.
Between reliefs and regrets
Adan welcomes the results of the political agreement on several major issues that had mobilized the sector. Exclusion of decentralised finance (DeFi) applications from the scope of MiCA was essential not to either distort such innovations or compel them to develop abroad. The non-qualification of NFTs as crypto-assets by default acknowledges that they are not an homogenous population of financial assets. The creation of a public register of non-compliant crypto-asset service providers (CASPs) with restrictions to their activity is an additional weapon against unlevel playing field and abuses detrimental to European users. Proportionate environmental provisions will help the crypto companies contribute efficiently to the EU fight against climate change.
However, in spite of our numerous alerts, some problems did not find a favourable outcome and will most likely threaten the achievement of regulatory objectives as well as EU competitiveness. Among them: an increased complexity and rigidity in the stablecoin regime (while American entities are already taking advantage of the opportunity to issue euro stablecoins in our place); the transposition for crypto markets of a reverse solicitation loophole for foreign non-compliant actors; an expanded scope of travel rule to all transactions (from the first euro) and to those between platforms and unhosted wallets; or even more, the systematic verification of information regarding holders of unhosted wallets for transactions above 1,000 euros.
“Europe is moving faster and further than any other major jurisdiction in the world. Both regulators and companies are aligned with the legitimate goals that regulations pursue. However, if we all strive to protect users, reach EU environmental objectives and act against financial crime – without giving up our sovereignty to foreign actors that are already bigger than European actors – there is a prerequisite: to have champions in Europe that carry our values and ambitions” warns Faustine Fleuret.
It ain’t over until the bell rings
Technical discussions are going on between co-legislators in order to finalise each regulation to be published in the Official Journal of the European Union. MiCA and revised TFR will enter into application 18 months after their entry into force probably by the end of 2022 ou in early 2023, with the exception of some specific provisions like on stablecoins. In the meantime, the industry will face many challenges. First, Adan strongly encourages clarification of several rules thanks to technical texts to be drafted by European regulators. This will be essential for market participants to get prepared to comply with MiCA and TFR. Second, texts such as the AMLA and AML regulations – which will be examined in the coming months – will complete these regulations and hopefully rebalance the power relations with foreign players. Finally, some issues have not been tackled in this first round of regulation of crypto-asset markets and will rather be addressed in the coming months and years, such as the treatment of DeFi applications or prudential requirements for crypto activities. That is why these political deals are only the end of the beginning for the EU regulation of markets in crypto-assets.
“Adan will never stop helping the sector on the road towards European regulations and paving the way to a strong and competitive European industry“ reassures Faustine Fleuret.
Adan (Association for the Development of Crypto-Assets) brings together crypto-assets and blockchain professionals in France and Europe. Its members cover many activities: markets, custody, payments, management, analysis tools, project and user support. Adan’s mission is to unite the digital asset industry and promote its development in the service of a new digital economy. To this end, the Association has technical expertise in digital assets and maintains a close dialogue with public authorities and industry associations.