Regulations are the key to establishing and implementing a transparent and inclusive crypto ecosystem. Countries and multilateral platforms work rigorously to research related aspects and draft legislation accordingly for installing an infallible system.
In April, the European Union passed a regulation related to crypto assets with a thumping majority. The European Parliament has approved the Markets in Crypto Assets (MiCA) regulation, the world’s first comprehensive set of rules that aims to bring largely unregulated cryptocurrency markets under government regulation.
The Union formally signed its landmark MiCA regulation into law on Wednesday, taking the bloc closer to becoming the first major jurisdiction in the world with drafting rules for the sector. The law was signed by the European Parliament President Roberta Metsola and Swedish Rural Affairs Minister Peter Kullgren. With this, a separate anti-money laundering law that requires crypto providers to verify their customers’ identity when they transfer funds was also passed.
The Swedish government announced the news on Twitter, which is currently chairing legislative talks as it holds the EU presidency. Lawmakers in the EU had batted the MiCA framework from the legislative body to body, with different aspects of the bill subject to debate, before reaching final approval in 2023.
MiCA will bring governance practices to crypto firms. By regulating the crypto industry, MiCA can prevent financial sector-like routs and contagions that could affect the wider economy. “Rout” means when people sell cryptocurrency in a panic, causing prices to fall sharply. “Contagion” means the danger of a collapse in one market affecting other markets, financial institutions, and the overall economy. The regulation prescribes different sets of requirements for crypto asset service providers (CASPs) depending on the type of crypto assets.
The MiCA legislation will apply to crypto assets, which are broadly defined as “a digital representation of a value or a right that uses cryptography for security and is in the form of a coin or a token or any other digital medium which may be transferred and stored electronically, using distributed ledger technology or similar technology”. This definition implies that it will apply not only to traditional cryptocurrencies like Bitcoin and Ethereum but also to newer ones like stablecoins. MiCA will also establish new rules for three types of stablecoins.
But, MiCA will not regulate digital assets that would qualify as transferable securities and function like shares or their equivalent and other crypto assets that already qualify as financial instruments under existing regulation. It will also exclude Non-fungible tokens (NFTs). MiCA will also not regulate central bank digital currencies issued by the European Central Bank and digital assets issued by national central banks of EU member countries when acting in their capacity as monetary authorities, along with crypto assets-related services offered by them.
It underlined the regulation of CASPs, it mentioned that CASPs must be incorporated as a legal entity in the EU. They can get authorized in any one 1mber country and operate across all 27 countries.
Regulators such as the European Banking Authority will supervise CASPs. It must demonstrate stability, soundness, and ability to keep user funds safe. CASPs must be able to defend against market abuse and manipulation.
The regulation presented White Paper Requirements for Stablecoin Service Providers it highlighted Stablecoin service providers must provide a white paper with key information about the crypto product and the main participants in the company, the terms of the offer to the public, the type of blockchain verification mechanism they use, the rights attached to the crypto assets in question, the key risks involved for the investors, and a summary to help potential purchasers make an informed decision regarding their investment.
It is important to note that about 22% of the global crypto industry is concentrated in central, northern, and western Europe ($1.3 trillion worth of crypto assets); having a comprehensive framework like MiCA will give the EU a competitive edge in its growth compared to the US or UK which lack regulatory clarity. Increasing investments and the size of the crypto industry have led policymakers worldwide to feel the need to bring governance practices to crypto firms to ensure stability.