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EU reaches agreement on European crypto asset regulatory rules

The European Council and parliament have reached a provisional agreement on rules regulating crypto assets in Europe.

Known as the markets in crypto assets (MiCA) proposal, the planned regulation would cover issuers of unbacked crypto assets, “stablecoins”, trading venues and the wallets where crypto assets are held. The European Union (EU) will for the first time bring crypto assets, crypto asset issuers and crypto asset service providers under regulatory rules.

The rules are aimed at protecting consumers against some of the risks related to crypto assets investment and helping them to avoid fraudulent schemes. They are also intended to preserve financial stability while encouraging innovation in the crypto asset sector, according to a statement by the EU.

Under the MiCA regulation, crypto asset service providers (CASPs) will be required to obtain formal authorisation in order to operate across EU countries. 

MiCA will cover any type of market abuse related to any type of crypto transaction or service, notably market manipulation and insider dealing. Those operating in the crypto assets market will be required to declare information on their environmental and climate footprint, based on regulatory technical standards to be developed by the European Supervisory and Markets Authority (ESMA).

Under the new rules, the European Banking Authority (EBA) will be responsible for maintaining a public register of non-compliant CASPs. CASPs whose parent company is located in countries on the list of EU third countries considered to be at high risk of anti-money laundering activities, or on the list of EU non-cooperative tax jurisdictions, will be required to implement enhanced checks in accordance with the EU anti-money laundering (AML) framework. Stricter requirements may also apply to shareholders and management of CASPs, particularly with respect to their localisation.

Stablecoin issuers will be required to build up sufficient liquidity reserves at a ratio of 1:1, partially in the form of deposits. Each stablecoin holder will be able to claim against the issuer free of charge at any time, and the rules for the operation of the reserve will also provide for sufficient minimum liquidity. All stablecoins will be regulated by the EBA, with a requirement for the issuer to have a presence in the EU as a precondition for any issuance.

Issuers of asset-referenced tokens (ARTs) will need to have a registered office in the EU to ensure the proper supervision and monitoring of offers to the public of ARTs.

Non-fungible tokens (NFTs), which are digital assets representing real objects such as artwork, music and videos, will be excluded from the scope of MiCA unless they belong to an existing class of crypto assets.

The provisional agreement must be fully approved by the European Council and parliament before it can be officially adopted.

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