EU promises “comprehensive regulation” as MiCA encryption law is adopted

The European Parliament has voted through landmark cryptocurrency legislation that will bring in new rules for the industry across the 27-nation bloc.

Markets in Crypto Assets (MiCA) passed by 517 votes to 38, with 18 abstentions, at a meeting in Strasbourg today.

Crypto companies included Binance, Coin base and Kraken welcomed the passage of the landmark legislation, while Stefan Berger, the MEP who led the bill’s creation, said in an email that Europe is now the “first continent with comprehensive regulation for crypto-assets.”

The MiCA poll results. Image: European Commission

“For new coins to be approved in the EU, it must be ensured in the future that their business model will not jeopardize our currency stability,” he said, writing in German. “The new supervisory structures will also be a bulwark against Lehman Brothers moments like the crypto exchange FTX.”

The MiCA legislation means that the EU will have a unified approach to the regulation of cryptoassets across all 27 member states, enabling firms approved in one country to “pass” their business to others with minimal additional paperwork.

But to achieve initial approval, firms will face much higher standards of disclosure, including the preparation of a detailed white paper for each asset offered. Stablecoin issuers, meanwhile, are subject to even tighter rules, including having sufficient cash to back up customer funds.

MiCA will also require crypto firms to report the environmental impact of their activities, in a compromise move after lawmakers removed a complete ban on the work permit mechanism from an earlier draft.

Europe’s crypto industry is at a pivotal moment

While concerns have been raised about the possible administrative burden of MiCA on small firms, many crypto companies have welcomed 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 recognizes the potential and societal promise that emerging technology can bring. The EU is stepping up, while other notable jurisdictions struggle to provide a solid, coherent regulatory framework that provides clarity to a burgeoning innovative industry.”

The vote also prompted crypto commentators to contrast the EU’s approach with that of other countries.

“Crypto needs a simple but comprehensive legal framework to grow,” commented Monty Metzger, founder of Liechtenstein-based exchange LCX, on Twitter. Earlier this week, he suggested that MiCA showed that the US and Asia are “lagging behind” in crypto regulation.

“Regulating enforcement like in the US is not a solution,” he added today. “We need rules and guidelines to allow technology innovation to happen.”

Richard Teng, Regional Head of Europe and MENA at Binance, said the regulatory landscape has “advanced forward” with today’s 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,” he said.

“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 put 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 regulations, protect users and support innovation.”

Mark Jennings, head of European operations at crypto exchange Kraken, hailed MiCA as a “tailored and pragmatic plan for cryptoassets to develop within a regulatory perimeter.” He added that “What once seemed like a lofty legislative goal could soon become a universal standard for customer protection and business efficiency, if the EU can get the technical implementation of this framework right.”

What happens afterwards?

MiCA does not take effect immediately. Once approved by the European Council, it can officially become EU law. The EU’s securities supervisory authority, ESMA, will then provide guidance on the details of how the regulation is to be applied.

There is some breathing space for both companies and member states to catch up with the regulation, with rules coming into force stable coins in July 2024, while other requirements will not be enforced until January 2025.

The Storting also passed a separate law today, the transfer of funds regulation, with 529 in favour, 29 against and 14 abstentions. The regulation will require crypto operators to identify customers in an effort to curb money laundering.