European Union: Council Adopts Crypto Framework or Markets in Crypto-Assets (MiCA)

The European Union (EU) brings crypto-assets, crypto-assets issuers, and crypto-asset service providers under a regulatory framework.

Last month after several delays, the European Parliament adopted MiCA or Markets in Crypto-Assets regulation. This legislative development aims to allow all EU member states to provide digital asset services in a harmonized environment. The approval of the European Council is a step in final step in the process.

Elisabeth Svantesson, Minister for Finance of Sweden, said in a press statement she was very pleased they will start regulating the crypto asset sector:

“Recent events have confirmed the urgent need for imposing rules which will better protect Europeans who have invested in these assets, and prevent the misuse of crypto industry for the purposes of money laundering and financing of terrorism.”

MiCA will aim to “protect investors by increasing transparency and putting in place a comprehensive framework for issuers and service providers including compliance with the anti-money laundering rules.”

The new rules “cover issuers of utility tokens, asset referenced tokens, and stablecoins – digital assets pegged to another asset such as a US dollar or a Euro. These digital assets have gained traction as a way to onboard onto crypto platforms but also hold potential for payment rails.

It also covers service providers “such as trading venues and the wallets where crypto-assets are held.”

This regulatory framework aims “to protect investors, preserve financial stability while allowing innovation and fostering the attractiveness of the crypto-asset sector.”

It also introduces “a harmonized regulatory framework in the European Union which, given the global nature of crypto markets, is an improvement compared to the current situation with national legislation in some member states only.”

The European Commission presented the MiCA legislation on September 24, 2020.

It is part of “the larger digital finance package, which aims to develop a European approach that fosters technological development and ensures financial stability and consumer protection.”

In addition to the MiCA proposal, “the package contains a digital finance strategy, a Digital Operational Resilience Act (DORA), that covers crypto-asset service providers as well, and a proposal on distributed ledger technology (DLT) pilot regime for wholesale uses.”

This package bridges “a gap in existing EU legislation by ensuring that the current legal framework does not pose obstacles to the use of new digital financial instruments and, at the same time, ensures that such new technologies and products fall within the scope of financial regulation and operational risk management arrangements of firms active in the EU.”

Thus, the package aims “to support innovation and the uptake of new financial technologies while providing for an appropriate level of consumer and investor protection.”

The Council “adopted its negotiating mandate on MiCA on 24 November 2021. Trilogues between the co-legislators started on 31 March 2022 and ended in a provisional agreement reached on 30 June 2022.”

The European Securities and Markets Authority (ESMA) is expected to set up a public register for non-compliant crypto assets service providers that operate in the EU without authorization.

The EU has been held out as a jurisdiction that has worked to produce bespoke regulations for crypto, unlike the United States. Some EU representatives have publicly drawn a comparison between the struggles in the US and the opportunity for the European Union. Following the vote in the EU Parliament, Stefan Berger, lead MEP for the MiCA regulation, said the European crypto-asset industry now has regulatory clarity that does not exist in countries like the US.

The legislation is available here.

The EU Digital Finance Page is available here.

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