EU lawmakers approve the world’s first comprehensive crypto regulation

Lawmakers in the European Parliament approved the world’s first comprehensive package of rules aimed at regulating the cryptocurrency industry.

In a vote on Thursday, the European Union Parliament voted 517 in favor and 38 against passing the Markets in Crypto Act, or MiCA. The legislation, which seeks to reduce risks to consumers buying crypto assets, would mean service providers becoming liable if they lose investors’ crypto assets.

The European Parliament said in a statement that the rules will impose a number of requirements on crypto platforms, token issuers and merchants around transparency, disclosure, authorization and oversight of transactions. statement Thursday.

The platforms will be required to inform consumers of the risks associated with their operations, while sales of new tokens will also be subject to regulation.

Stablecoins such as Tether and USDC will be required by Circle to maintain ample reserves to meet redemption requests in the event of mass withdrawals. Stablecoins that have become too big also face being limited to 200 million euros ($220 million) worth of transactions per day.

The European Securities and Markets Authority, or ESMA, will be given powers to step in and ban or restrict crypto platforms if they are seen as not properly protecting investors, or threatening market integrity or financial stability.

MiCA also addresses environmental concerns surrounding cryptocurrency, as companies are forced to disclose their energy consumption as well as the impact of digital assets on the environment.

Mairead McGuinness, European Commissioner for Financial Services, He hailed the approval of the law Thursday She said she expected the rules to be implemented “from next year”.

Andrew Whitworth, Director of EMEA Policy for Blockchain firm Ripple, said that the parliamentary pool represents “an important milestone in the cryptocurrency industry around the world.”

“Consistency in enforcement around the EU will be key in providing crypto companies with operational clarity to support innovation across Europe and protect against unintentional fragmentation of the single market,” Whitworth told CNBC via email.

“As part of this, there is a need to ensure that legislation is applied proportionately with regard to how different companies’ crypto offerings are handled, based on the risk profiles of their activities.”

Parliament also passed a separate law aimed at reducing the anonymity involved in transfers of cryptocurrencies such as bitcoin and stablecoins, voting 529-29 to pass the Money Transfer Regulation.

This so-called “travel rule,” which requires financial firms to examine, record, and report information on both sender and recipient, applies to crypto transactions to help combat money laundering.

Transfers between exchanges and so-called “self-hosted wallets” owned by individuals must be reported if the amount exceeds the €1,000 threshold, a contentious issue for crypto enthusiasts who often trade cryptocurrencies for privacy reasons.

In a tweet, Changpeng Zhao, CEO of the world’s largest cryptocurrency exchange, Binance, said his company is “ready to make adjustments to our business over the next 12-18 months to be in full compliance.”

Binance is under intense scrutiny from regulators on how it operates. In March, the Commodity Futures and Trading Commission sued Binance, former chief compliance officer of Zhao and Binance, Samuel Lim, alleging that the company actively solicited US users without permission.

Zhao hailed MiCA as “a practical solution to the challenges we collectively face”.

Regulators have sought to rein in the cryptocurrency market in the wake of several catastrophic failures in the industry. In May, terraUSD, a controversial stablecoin project, collapsed in a $60 billion conflagration after investors lost faith in its technical underpinnings.

The demise of terraUSD caused a chain reaction in the industry, with several other companies going bankrupt, including Three Arrows Capital, BlockFi, and Voyager Digital. FTX, once the fourth largest cryptocurrency exchange, filed for bankruptcy in November in the crypto industry’s biggest failure to date.

The move puts the European Union ahead of the United States and the United Kingdom, which have yet to set formal rules in the cryptocurrency space. A British official said on Monday that specific regulation of cryptocurrencies could come into force within a year or so.

Once EU laws come into force, cryptocurrency companies will be able to use their licenses in a single European country to “passport” their services across the various member states. Cryptocurrency companies are scrambling to obtain licenses from various European authorities and open new offices in anticipation of the law coming into force.

Cryptocurrency exchanges Coinbase and Kraken recently obtained licenses as a virtual asset service provider in Dublin. Blockchain Ripple is seeking a license from the Central Bank of Ireland.

US crypto companies abroad are looking to expand in response to strict regulatory moves in their home territories. The SEC issued Coinbase with a Wells Notice, which is often one of the last steps before a regulator officially releases the fee, last month.

On Thursday, Coinbase CEO Brian Armstrong told CNBC at a fintech event that the company is ready for a “protracted” legal battle with the SEC.

He said separately in an onstage talk that the US “has the potential to be an important market in cryptocurrency” but at the moment does not provide regulatory clarity. If this continues, he said, Coinbase will look at options to invest more abroad, including moving from the US to another location.

— CNBC’s Arjun Kharpal contributed to this report

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