European Union approves world's first crypto rules: What it means
The meltdown of crypto exchange FTX and the subsequent turmoil shed light on the need to regulate cryptocurrencies. Now, the council of EU finance ministers has given the nod to the bloc's highly-anticipated crypto rules, bringing Europe closer to being the first major jurisdiction with a legal regime to govern crypto. Let's look at EU's crypto rules and what it means for others.
Why does this story matter?
The 'wild west' world of cryptocurrencies has always been away from the clutches of law. However, the implosion of FTX and the arrest of crypto wunderkind Sam Bankman-Fried renewed the calls for regulating crypto worldwide. The EU has been leading the efforts to regulate the crypto industry. Every step it takes puts more pressure on countries like the US and UK to make rules.
The regulation was first proposed in September 2020
The European Commission first proposed the Markets in Crypto Assets (MiCA) regulation in September 2020. After facing various hurdles, the European Parliament approved the regulations last month. The final nod from the finance ministers of 27 member states brings the law closer to reality. The next step requires MiCA to be published in the Official Journal of the European Union.
MiCA is expected to become law by mid-2024
Once a bill is approved by the European Council, it does not take much time for it to become law. Usually, it takes about a year. We can expect MiCA to become law by mid-2024.
The law requires crypto firms to obtain a license
MiCA sets clear regulatory requirements and guidelines for using cryptocurrencies and related services across the bloc. It requires crypto firms to obtain a license to operate in Europe. This includes issuers of cryptocurrencies, wallet providers, and exchanges. Another key feature of the regulation is the need for stablecoin issuers to hold suitable reserves. The legislation also aims to prevent market abuse and insider trading.
Recent events confirmed the need for regulations: Swedish finance minister
"I am very pleased that today we are delivering on our promise to start regulating the crypto-assets sector," said Elisabeth Svantesson, the finance minister of Sweden, which holds the council presidency. "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," she added.
EU's framework can be a template for other countries
With the EU nearing a comprehensive framework to deal with cryptocurrencies, the focus is now on other markets. The bloc's framework also includes anti-money laundering and tax evasion measures. This should serve as a model for other countries. The UK's finance ministry recently said it plans "robust" regulations for crypto assets. It is unclear when we will see more action from the UK.
US is still using the existing system to govern crypto
The US is still figuring out what it has to do despite being the epicenter of the FTX collapse. It seems crypto regulation is a part of the country's legislative agenda for 2023, but it is currently using the existing system to control crypto assets. Meanwhile, India is of the opinion that regulating crypto requires significant international collaboration.
