The landmark Markets in Crypto Assets bill passed, allowing for new rules for the industry to operate in the European Union. The European Parliament passed the Market in Crypto Assets (MiCA) bill in Strasbourg on Thursday, with 517 votes in favour, 38 against, and with 18 abstentions.
Habemus MiCA! 🇪🇺🚀
After more than 2.5 years of consultation, heated debates, last-minute amendments, and very close votes in the committee, the EU Parliament's plenary today passed the new EU crypto framework with an impressive majority of 517 MEPs for and 38 votes against.… pic.twitter.com/iS6GCcElnp
— Patrick Hansen (@paddi_hansen) April 20, 2023
Upon debates prior to voting, lawmakers are saying that the new rules will end the industry’s reputation of being a ‘wild west’, and can restore trust in the industry after a marathon of high-profile crypto collapses in 2022.
Europe is the world’s largest single market area, with 450 million relatively wealthy customers in the region.
Ernest Urtasun, a Spanish MEP who was part of the team who put the bill together, believes that MiCA would “mark the end of the wild west era for the unregulated world of crypto assets.”
“For over a decade, the lack of regulation has resulted in massive losses to many first-time investors and provided a safe haven for fraudsters and international criminal networks. MiCA represents an important and necessary first step to bring the crypto sector under regulatory oversight.”
Behind the new set of proposed rules and regulations is German MEP Stefan Berger, who has said that MiCA would put the EU “at the forefront of the token economy”, and would “restore the trust that was damaged by the FTX case”.
In an email statement after the bill’s passing, Berger wrote that Europe is now the “first continent with comprehensive regulation for crypto assets.”
“In order for new coins to be approved in the EU, it must be ensured in future that their business model will not endanger our currency stability,” the statement writes in German. “The new supervisory structures will also be a bulwark against Lehman Brothers moments like the crypto exchange FTX.”
Once enacted, MiCA will introduce a unified approach to crypto asset regulation within all 27 member states in the EU. This will make it possible for firms that have been approved in one country to be able to operate in other EU countries with minimal additional paperwork in a process called ‘passporting’.
Under MiCA, crypto firms operating in the EU will have to comply with higher standards of disclosure, prepare detailed white papers for each asset offered, and report the environmental impact of their activities – rather than an all-out ban on blockchains running on proof-of-work mechanisms from an earlier draft.
Other parliamentarians agreed in support of MiCA as a gateway to earning back trust in the industry, citing FTX’s catastrophic meltdown as a prime example of what the bill can prevent.
Amongst those convinced include financial commissioner Mairead McGuinness, who argues that if FTX were under EU jurisdiction, “many of its practices would not have been permissible.” Under MiCA, crypto firms are required to disclose conflicts of interest, and are prohibited from using their client’s funds.
But with support also can bring criticism.
Amongst the parliamentarians, Irish MEP Chris MacManus has backed MiCA solely on the bill’s emphasis on transparency and consumer protection. However, MacManus’ personal opinion regarding crypto isn’t quite favourable.
“I have no interest in creating a market in, or fostering the use of, crypto assets,” he said. “At their worst, they’re pyramid schemes, are used by criminal gangs for money laundering, are defrauding working people, and they can waste huge amounts of energy for no purpose.”
Netherlands MEP Paul Tang also expressed concerns, comparing crypto to an event that happened in his own country’s history: the tulip craze of 1637, an early financial market bubble.
“The bubble burst, savers and speculators and investors were left in ruins,” expressed Tang. “The similarities with crypto are stark. Nobody knows what to use them for, but they are the next hot thing.” Despite the uncertainty, Tang concluded that tulips then became a part of Dutch culture, and says that crypto can also go through “the same thing” one day.
German MEP Gunnar Beck also objected to MiCA, saying that once the bill is implemented, the EU will be “criminalising decentralised finance and its users” through requiring more transactions to be reported to authorities. “The EU is establishing a total financial surveillance state,” he adds.
A new era for crypto in Europe
Parliamentarians also mostly agreed that the regulations to be put in place with MiCA would need to be kept relevant so they can avoid being out of date from ongoing technological developments.
“Europe missed the innovation train when it came to the internet,” said Portugal’s Lídia Pereira. “It is not sufficient now to just catch the train, we have to be the drivers of this new era.”
With the new regulations, smaller crypto companies have been concerned about the administrative burdens that may come from higher scrutiny. However, many international crypto companies have expressed excitement about the EU’s recognition of the industry.
“The European Parliament’s adoption of MiCA today is a pivotal moment for the crypto industry in the region, and the work of European policymakers should be seen as exemplary,” said Tom Duff Gordon, Vice President of International Policy at Coinbase. “The region is recognising the potential and societal promise that emerging technology can provide. The EU is stepping up to the mark, while other notable jurisdictions are struggling to provide a solid, cohesive regulatory framework that gives clarity to a burgeoning innovative industry.”
As the EU makes a giant leap towards creating a comprehensive framework for crypto regulation, crypto commentators have been contrasting the EU’s attitudes towards crypto to the rest of the world.
“It would be a surprise if other jurisdictions like the UK and the US aren’t quick to follow suit and further accelerate their crypto regulatory efforts,” says Alisa DiCaprio, chief economist at enterprise blockchain firm R3.
“Crypto needs a simple but comprehensive legal framework to grow,” tweeted Monty Metzger, founder of Liechtenstein-based exchange LCX. Previously, Metzger wrote that the US and Asia are “falling behind” on crypto regulation. “Regulation by enforcement like in the US is not a solution,” he added. “We need rules and guidelines to let technology innovation happen.”
Richard Teng, Regional Head of Europe and MENA at Binance, also expressed optimism about the future, as the EU’s regulatory vision has “shifted forward” upon the vote. “MiCA will bring regulatory clarity to one of the largest markets in the world, making the EU an even more attractive place for Web3 companies to innovate and attract talent,” said Teng.
“As with all regulation, the small details will be key, but overall we believe this is a pragmatic solution to the challenges facing the industry. At Binance, we are putting together clear rules of the game for crypto exchanges to operate in the EU. We will make the necessary changes to our business over the next 12-18 months to fully comply with regulation, protect users and support innovation.”
The European Parliament voted for MiCA to be implemented.
This means one of the world’s largest markets is introducing tailored regulations for crypto to protect users and support innovation.
The fine details will matter, but overall we think this is a pragmatic solution to…
— CZ 🔶 Binance (@cz_binance) April 20, 2023
On another note, the EU Parliament also voted in favour for a separate law called the Transfer of Funds regulation, which requires crypto businesses to identify their customers to prevent money laundering.
MiCA will not come into effect immediately, and the EU has decided upon giving both authorities and firms in the region some breathing room in order to prepare for compliance.
Once MiCA gets its final formal approval by the European Council on May 16, it can be officially made EU law. Then, ESMA, the EU’s securities regulator, will produce guidance on how MiCA regulations should be applied.
Rules for stablecoins will come into force in July 2024, whereas other requirements, such as those for crypto asset service providers, will come into effect in January 2025.
Despite the positivity, crypto firms have expressed struggle as MiCA’s development has been delayed, leaving them in a “transition period”, according to Coinbase vice president for business development Nana Murugesan. Crypto companies like Coinbase, says Murugesan, in the time period before MiCA’s enactment, would be required to seek operational licensing in multiple EU states until ‘passporting’ comes into effect.
“Once MiCA comes in, it’ll become much more of a pan-European bloc strategy,” Murugesan said in an interview, adding that he views the EU’s regulation of crypto as still a “work in progress.”