European Parliament Gives Green Light To Key Crypto Legislation

April 21, 2023
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The EU’s first comprehensive legal framework for crypto-assets has been passed by a super majority in the European Parliament with no further obstacles expected.

The EU’s first comprehensive legal framework for crypto-assets has been passed by a super majority in the European Parliament with no further obstacles expected.

Members of the European Parliament (MEPs) have endorsed the first EU rules on supervision and market protection, as well as visibility for crypto transfers.

“This puts the EU at the forefront of the token economy with 10,000 different crypto-assets,” said Stefan Berger, a German MEP.

“Consumers will be protected against deception and fraud, the sector that was damaged by the FTX collapse can regain trust, and the European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”

The Markets in Crypto-Assets (MiCA) regulation was first introduced by the European Commission in September 2020 as part of the EU’s Digital Finance Strategy. The Transfer of Funds Regulation (TFR), meanwhile, was proposed as part of the EU’s financial crime package in 2021.

“We are putting in place comprehensive, tailored rules for crypto-assets in the European Union. No one in this House I think questions why these new rules are absolutely vital for the financial system,” said European Commission financial services chief Mairead McGuiness.

In her opening speech to the European Parliament on Wednesday (April 19), the Irish politician noted that recent months show that stringent rules and supervision are very much needed.

“We've had the collapse of projects such as FTX, Terra Luna, Celsius and Voyager,” she said.

“We've seen many retail investors, lured in by false promises or false hopes, losing huge amounts of money, and while the crypto market may be too small to trigger systemic risks, we do know there are increasing links between crypto markets and traditional financial services.”

MEPs approved the TFR with 529 votes in favour, 29 against and 14 abstentions. Similarly, MiCA received 517 votes in favour, 38 against and 18 abstentions.

EU-wide travel rule

The TFR aims to ensure that crypto transfers, as is the case with any other financial operations, can always be traced and suspicious transactions blocked.

The so-called “travel rule”, already used in traditional finance and already enforced for crypto players in Germany and Estonia, will in the future cover transfers of crypto-assets throughout the EU.

Information on the source of the asset and its beneficiary will have to be included with the transaction and be stored on both sides of the transfer.

The law would also cover transactions above €1,000 from self-hosted wallets (a crypto-asset wallet address of a private user) when they interact with hosted wallets managed by crypto-assets service providers.

The rules, meanwhile, do not apply to person-to-person transfers conducted without a provider or among providers acting on their own behalf.

“Parliament and Council have found a fair compromise that will make it safer for people of good will to hold and trade crypto assets,” said Assita Kanko, a Belgian MEP.

“However, it will make it more difficult for criminals, terrorists and sanctions evaders to misuse crypto-assets.”

Kanko insisted that any administrative burden on crypto companies and innovators will be more than offset by the fact that the EU are unifying the currently fragmented market that has 27 regulatory regimes.

MiCA provisions

MiCA, meanwhile, will cover crypto-assets that are not regulated by existing financial services legislation.

Key provisions for issuing and trading crypto-assets (including asset-reference tokens and e-money tokens) cover transparency, disclosure, authorisation and supervision of transactions.

Through this, consumers will be better informed about the risks, costs and charges linked to their operations, and the new legal framework will also support market integrity and financial stability by regulating public offers of crypto-assets.

The agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing and other criminal activities.

For example, to counter money laundering risks, the text says that the European Securities and Markets Authority (ESMA) should set up a public register for non-compliant crypto-asset service providers that operate in the European Union without authorisation.

And further, to reduce the high carbon footprint of cryptocurrencies, significant service providers will have to disclose their energy consumption.

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