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European Council approves Markets in Crypto Asset regulation (MiCA)

Friday 7 October 2022 14:02 CET | News

The European Union has agreed on the legal text for licensed crypto firms, by passing the landmark Markets in Crypto Asset regulation (MiCA).

 

The legislation will now need to pass through a further vote in the European Parliament next week and if approved, the laws under MiCA would commence at the start of 2024. The scope of MiCA covers issuers of unbacked crypto assets, stablecoins, trading venues, and wallets alongside rules to reveal the identity of persons transacting cryptocurrencies. 

In June 2022, the European Council and European Parliament reached a provisional agreement on MiCA, marking the first comprehensive EU stance on cryptocurrencies. Back in June, The move came a day after the European Council, European Parliament, and The European Securities and Markets Authority (ESMA) finalised measures aimed at decreasing money laundering in crypto. 

Under the regulation, stablecoins like tether and Circle’s USDC will be required to maintain ample reserves to meet redemption requests in the event of mass withdrawals. Stablecoins that become too large also face being limited to EUR 200 million in transactions per day.

 

 The European Union has agreed on the legal text for licensed crypto firms, by passing the landmark Markets in Crypto Asset regulation (MiCA)

 

MiCA provisions and aims

Under MiCA, any credit institution, cryptoasset service provider (CASP), or investment firm that provides custodial services must be based in the EU. In particular, this will impact crypto exchanges and stablecoin issuers, with the vast majority of these players headquartered outside of the EU, as AltFi explains.

Moreover, CASPs as a whole will have to respect requirements to protect consumer wallets and will be liable if they lose an investor's crypto assets – unless they can prove that the loss was out of their control. 

MiCA also aims to regulate insider trading, unlawful disclosure of inside information, along with other market manipulation concerts related to cryptocurrencies to preserve the integrity of the market. Under MiCA, crypto operators have the obligation to declare information on the environmental footprint, even tough no ban on a proof-of-work consensus mechanism is stipulated in the regulation. 

ESMA will be maintaining a register of all non-compliant cryptoasset firms. 

Types of cryptocurrencies under MiCA

Under MiCA, cryptocurrencies have been categorised into three different types: 

  • Utility tokens, are issued with non-financial purposes to digitally provide access to an application, services, or resources available on blockchain networks

  • Asset-referenced tokens (ART). These coins maintain a stable value by referencing several currencies that are legal tender, one or several commodities, one or several cryptoasset, or a basket of such assets. 

  • E-money tokens (EMT) are crypto assets with a stable value based on only one fiat currency that aims to function similar to electronic money.

As explained by AltFi, according to MiCA, stablecoins that are not denominated in Euro and are issued by an entity that is based outside the EU and used by a non-EU bank for custody of its cryptocurrencies is considered an ART. The European Banking Authority will be tasked with determining and classifying ARTs. After the European Central Bank will that they pose a threat to EU monetary sovereignty, national competent authorities will be able to withdraw the authorisation of any ART issuers.

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Keywords: European Commission, European Union, AML, MiCA, money laundering, cryptocurrency, stablecoin
Categories: DeFi & Crypto & Web3
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Countries: Europe
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DeFi & Crypto & Web3






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