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Original | DL News
Recommended reading: “Interpreting the MiCA Act of the European Union: What Impact Will Tighter Regulations Have on the Crypto Ecosystem?”
● The European Council has approved the long-awaited MiCA (Markets in Crypto-Assets) regulations, the last step to becoming official law.
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● Other laws that may be passed in the European Union include cryptocurrency tax reporting standards, anti-money laundering rules, seeking to issue digital euros, and smart contract regulations.
The European Union’s important handbook of cryptocurrency rules has just passed the final legislative hurdle. Representatives of member states of the European Council unanimously approved rules for the crypto asset market. These rules, called MiCA, are expected to take effect in June, and the new law will involve consumer protection, market integrity, and financial stability. Elisabeth Svantesson, the Swedish Minister of Finance, representing the current chair of the Swedish Council, said the regulations would “better protect Europeans who invest in these assets and prevent the cryptocurrency industry from being used for money laundering and financing terrorism.”
Companies offering cryptocurrency services in the European Union will have legal certainty, and MiCA will allow them to “transfer” their licenses from one member state to another of the group of 27 countries. Stablecoin issuers will need to meet capital and reserve requirements and face restrictions on stablecoins denominated in non-euro currencies. Regulations on stablecoins will take effect in mid-2024, and the rest will take effect in early 2025. Before that, European regulators need to draft technical rules on how to implement the legislation.
EU policymakers are moving to end the cryptocurrency “wild west” and develop regulatory blueprints for other jurisdictions. While MiCA is hailed as the first major, comprehensive regulation of crypto assets, it is far from the only regulatory rule affecting the industry. Here are nine other rules that will shape the European crypto industry.
Travel rules for cryptocurrencies
The revised Funds Transfer Regulation (TFR) requires identity details for both the sender and receiver of crypto transactions. This rule is expected to be implemented at the same time as MiCA. The European Council approved TFR on Tuesday.
The Digital Operational Resilience Act (DORA) sets standards for network and data security for financial companies, such as credit institutions, investment firms, and crypto service providers. The new law will take effect from January 2025, requiring companies to establish a strong ICT risk management framework, report relevant incidents to authorities, and regularly test their digital operations.
“DORA is actually the cornerstone of our work on digital finance in the European Union,” European financial commissioner Mairead McGuinness told lawmakers in November. “Financial institutions are increasingly dependent on technology. More and more people and businesses manage their finances online. Therefore, protecting the financial system from cyber attacks and online fraud is essential.”
Tax Reporting
The eighth edition of the Administrative Cooperation Directive (DAC8) requires tax reporting from cryptocurrency service providers. According to a briefing from the European Parliament, a crypto reporting framework could add up to €2.4 billion in tax revenue for the EU each year.
From 2026, companies that provide crypto services will be required to report their customers’ domestic and cross-border transactions to national authorities. This may include non-fungible tokens (NFTs) and central bank digital currencies.
In the EU legislation, this is the first time that mortgages and loans have been included in the definition of crypto activity, which has sparked opposition from the industry. As it is a directive rather than a regulation, EU member states will have more flexibility on how to implement the rules.
For all tax-related policies, the European Council, which represents member states directly, will be responsible for decision-making. The Council published a text version on Monday, and selective negotiation with the European Parliament can be expected before the text is passed.
Tokenization Sandbox Market
The DLT (distributed ledger technology) pilot scheme is a regulatory sandbox that allows traditional financial participants and new players in the market to try tokenized financial instruments and innovative markets based on decentralized technology. The project will launch in March 2023 and will last for three years.
The European Securities and Markets Authority will act as a regulator in the pilot and will write a report on its findings in March 2026. Once submitted, the European Commission is expected to propose legislation.
The DLT pilot scheme is part of the Digital Finance Package proposed by the European Commission in 2020, alongside MiCA and DORA.
Digital Euro
The European Central Bank is making final strides in the design phase of a central bank digital currency. Although a decision on whether to proceed is expected in October, the European Commission will propose legislation in June.
The digital Euro is likely to rely on intermediary platforms like private banks to provide users with wallets, with the central bank itself unable to collect data.
“Using the digital euro can help increase the euro’s role internationally,” said an economic commissioner at Monday’s meeting of eurozone finance ministers, adding that CBDCs can help strengthen monetary sovereignty.
Metaverse and Virtual World Proposals
The European Commission released a proposal on virtual worlds in April and accepted feedback until early May. Industry and expert responses to the consultation have been responded to, with EU institutions taking the feedback into account for the next release of the text.
The EU’s proposal aims to regulate emerging metaverses based on “respect for digital rights, as well as EU law and values.”
European officials are wary of potential antitrust issues, such as Meta’s vision of creating a single metaverse.
Digital Identity Framework
The EU has proposed a digital identity card that provides citizens with a personal wallet for accessing public services. The legislation includes zero-knowledge proof technology – a way to protect user privacy by revealing only necessary data in a given transaction.
The industry opposes the possibility of the parliament canceling the electronic ledger as the foundation of this framework technology, but this issue is still being negotiated between institutions.
An open letter from the International Association for Trusted Blockchain Applications stated, “Removing this concept from the regulation will raise many subsequent issues, as electronic ledgers are now widely used as a key component of trust architecture.” “Electronic ledgers are critical to building a robust European digital infrastructure against network attacks, which is beneficial for European businesses and consumers.”
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