EU‘s Proposed Crypto Regulations：Flawed Or Not?

[TL; DR]

The European Union is proposing a regulation to control some activities and operators in the crypto market.

The regulation is titled Markets in Crypto Assets (MiCA).

MiCA is a proposed law before the EU parliament intended to streamline the distributed ledger technology (DLT) and virtual asset industry.

The European Union’s MiCA proposal aims to protect crypto users and investors and prevent illegal crypto transactions.

The regulation proposal will confer the regulatory power on the EU and allow only licensed crypto providers to offer crypto-related services.

The EU is the first international bloc to propose such regulation, and since it went public, it has generated mixed reactions.

Industry players and policymakers in the crypto ecosystem are unsatisfied with some of the provisions of the regulation.

It is expected that the Anti-money Laundering (AML) legislation, Transfer of Funds Regulation (TFR), and some other sections will be amended before the final passage of the regulation.

Keywords: EU, European Union, regulation, law, MiCA, provision, crypto, Government, market.

[Full Article]

The cryptocurrency market is decentralized and unregulated across the globe. Until recently, when there was increased and unprecedented attention on the crypto ecosystem, some few countries began to introduce various regulations.

While some of these regulations already existed, and parts were modified to encompass crypto-related activities, some governments are trying to promulgate an entirely new rule to checkmate the activities in the crypto market.

One of those recently promulgated regulations is the EU’s MICA regulation. However, the proposed regulation has been a subject of controversy in recent times.

Not to worry, in this article, we shall examine the EU’s MICA regulation and identify whether it is flawed or widely accepted.

Let’s begin!

EU’s MiCA Regulation

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Image: XReg Consulting

The European Union’s regulation titled Markets in Crypto-Assets (MiCA) is a proposed law that is intended to streamline the distributed ledger technology((DLT) and virtual asset industry. The proposed regulation aims to protect crypto users and investors.

The EU’s MiCA proposal document was made public on the 24th of November, 2021. It is a 405-page document addressing the challenges facing the unregulated crypto market.

The regulation proposal enables the European Union to serve as a regulator and insulate the financial system from cryptocurrency. Being a regulator will help control the on and off-ramp that has characterized the digital assets ecosystem.

The European Union proposes the MiCA regulation that will enable only licensed crypto providers to offer cryptocurrency and operate crypto exchanges in the European Union. It is worth knowing that the European Union is the first international bloc to propose a crypto regulation.

When the legislation is passed into law by the parliament and becomes operational, all crypto issuers will have to obtain a banking license in any EU member state and be completely transparent in their transactions.

The MiCA regulation is expected to follow a three-way negotiation that will involve the European Council, European Commission, and The European Parliament.

The Events And Happenings Surrounding The Proposed Crypto Regulation

Image: Coincu News

In the MiCA regulation, some clauses are the subject of controversy and seem to be flawed. Some of these areas of legislation have generated mixed reactions since the regulation details went public. They include;

The Anti-money Laundering legislation in MiCA has been a subject of controversy. It is expected that by Thursday, the European parliament will vote on this revised legislation. The voting by parliament members will either compel crypto exchanges to share details of customers’ anonymous transactions or keep the details anonymous.

Similarly, the European Union Transfer of Funds Regulation (TFR) is believed to be flawed. Policymakers are therefore seeking amendments to the TFR provisions regulating how unhosted digital wallets are handled within the international bloc.

For instance, Unhosted wallets like Metatask are considered digital wallets not under the Financial Action Task Force (FATF). They are not considered Licensed Virtual Asset Service providers (VASP). There are, however, agitations for them to be included and considered for legislation when the revised amendment is being considered.

Another provision within the regulation is the section that seeks financial institutions' obligation to accompany funds transfers with information about the payer and the recipient. The section wants the recipient's information even if the recipient is not a customer of such a Virtual Asset Service Provider (VASP).

Some industry players have something to say to bolster the flawed legislation.

Paul Grewal, the Chief Legal Adviser of Coinbase, said, “ the amendments are based on bad facts in the way the regulators view crypto as a vehicle for criminal activity. ….. If adopted, this revision would unleash an entire surveillance regime on exchanges like Coinbase, stifle innovation, and undermine the self-hosted wallets that crypto users use to protect their digital assets securely.”

Finally, the EU's regulatory framework is the first of its kind by an international organization. Some EU member states have legislation for crypto tokens and other digital assets.

This arrangement makes it unclear whether there will be an agreement on this legislation at the international level. Should there not be an agreement (which is likely possible), there will be a split between the national and European regulators.

Crypto users are therefore confused and have little knowledge of their rights to protection or redress, especially if the transactions occur outside the EU.

To explain the amendments that have been the subject of controversy in the crypto ecosystem, the EU policymakers claimed that the measures and provisions are designed to "ensure crypto-assets from potentially dodgy sources do not enter the regulated financial system."

Conclusion

The EU MiCA regulation is necessary to curtail the constant rise and fall of the crypto market. Most especially as the happening in the cryptocurrency industry largely affects the traditional financial market.

While some provisions in the legislation are excellent, some areas are flawed and need to be amended to ensure the crypto market provides a level playing ground for all digital asset providers.

Some experts strongly advise the EU to consider crypto under existing laws and regulations instead of creating an entirely new regulatory framework. They opine that diverse regulatory approaches will promote regulatory arbitrage, and providers will always triumph while the investors and customers will be victims.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute investment suggestions.

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