LONDON: Cryptocurrency companies will need a licence and customer safeguards to issue and sell digital tokens in the European Union under groundbreaking new rules agreed by the bloc to tame a volatile “Wild West” market.
Globally, crypto assets are largely unregulated, with national operators in the EU only required to show controls for combating money laundering.
Representatives from the European Parliament and EU states thrashed out a deal late on Thursday on its Markets in Crypto-assets (MiCA) law.
“Today we put order in the Wild West of crypto assets and set clear rules for a harmonised market,” said Stefan Berger, a German centre-right lawmaker who led negotiations on behalf of the parliament.
“The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act,” Berger said.
Crypto markets have tumbled this year, pressured by the collapse of the terraUSD stablecoin and the freezing of withdrawals and transfers by major U.S. crypto lender Celsius Network.
Bitcoin, the biggest token, has slumped some 70% since its November record of $69,000, dragging down the overall market.
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Protecting Consumers
The landmark regulation confirms the EU’s role as a standard-setter for digital issues, EU states said.
“With the new rules, crypto-asset service providers will have to respect strong requirements to protect consumers’ wallets and become liable in case they lose investors’ crypto-assets,” they added.
The deal will need formal rubberstamping by the European Parliament and EU states to become law, followed by an implementation period.
The new law gives issuers of crypto assets and providers of related services a “passport” to serve clients across the EU from a single base.
Holders of stablecoins - a type of crypto designed to hold a steady value - will be offered a claim at any time and free of charge by the issuer, with all stablecoins supervised by the bloc’s banking watchdog EBA.
Robert Kopitsch, secretary general of the Blockchain for Europe lobby group that includes the major exchanges Binance and Crypto.com, said the rules were “a mixed bag”.
“Thanks to last-minute changes, we also fear that stablecoins will basically have no ways to be profitable,” Kopitsch said.
AFME, a financial markets industry body, said the rules would bring certainty, reduce fragmentation and underpin the development of a robust and well-functioning market.
More clarity is needed, however, to ensure that custodians of crypto assets are only on the hook in cases of negligence or misconduct, and not for events beyond a custodian’s control, such as a nation state hack, AFME said.
Finance Watch, which promotes the public interest in finance, said the rules will protect consumers, and it welcomed the new role for EBA after the difficulties faced by stablecoins.
NFT Compromise
Many states, including Ireland, Lithuania and Greece, have long opposed including non-fungible tokens (NFTs), which are digital assets representing objects from art to videos.
But under pressure from EU lawmakers, the compromise reached on Thursday night foresees that “NFTs will be excluded from the scope except if they fall under existing crypto-asset categories”.
Brussels will assess within 18 months whether standalone rules are needed for NFTs.
National regulators will be responsible for licensing crypto firms, but they will have to keep the EU’s securities watchdog ESMA informed about large operators.
ESMA will develop standards for crypto companies to disclose information on their environmental and climate footprint.
The United States and Britain, two major crypto centres, have yet to approve similar rules.
The company behind the major USD Coin stablecoin called the rules “a significant milestone.”
“While no comprehensive body of rules is perfect … it nonetheless provides practical solutions to issues that other jurisdictions are just beginning to grapple with,” U.S. firm Circle said in a blog.
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