Why the EU has MiCA and the US has securities law confusion
The European Parliament went ahead and did it: Today, after years of deliberation and at least two official delays, the landmark Markets in Crypto-Assets (MiCA) regulatory framework was voted into law. EU legislators also adopted a separate crypto-related rule known. such as the Transfer of Funds Ordinance that imposes stronger monitoring and identification requirements on crypto operators, CoinDesk’s Jack Schickler reported.
The rules were described as a “world’s first” by the European Commission’s Mairead McGuinness, and also an “end to the Wild West era of cryptoassets,” according to Green Party lawmaker Ernest Urtasun. The laws, which will be enforced at state level, still need to be officially approved by the supranational body called the Council of the European Union, are due to come into force next year. (The council’s approval is more of a formality at this point, since it already approved the text of the law last year.)
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For many, MiCA represents a decisive step forward for the crypto industry. It is the first major attempt to provide a comprehensive set of rules for crypto companies, so they know in advance what they can and cannot do and where their responsibilities lie if they want to operate in the powerful 27-nation trading bloc. The European Union hopes it sets the global standard (and is somehow concerned about MiCA’s effectiveness in the EU if similar rules are not adopted everywhere).
CoinDesk has written a number of overviews of the legal framework. But. In short, MiCA requires crypto firms – such as wallet providers and exchanges – to be licensed by the EU, and comply with anti-money laundering and terrorist financing safeguards if they wish to serve EU-based clients. Some have failed reporting standards, which will undoubtedly undermine the privacy of crypto users in the name of customer safety and national security.
But given how regulatory uncertainty has dampened the crypto industry’s ability to grow over the past decade (that’s been a recurring line from crypto lobbyists and advocates), the move brings a certain amount of welcome transparency and stability. Binance CEO Changpeng Zhao tweeted his supportand calls MiCA “a pragmatic solution” that his exchange will follow.
All of this is relative to the other two massive crypto markets – the US and China. At least on paper, China has officially banned all crypto activity – but recent smoke signals suggest that freeze may be thawing (at least in a Hong Kong financial sandbox). The country has not been able to eradicate crypto-trading or mining completely, and legitimizing some parts of the industry could be a boon for those looking to make a comeback.
Meanwhile, in the US, there appears to be a coordinated effort by elected representatives, unelected regulators and policymakers from both major political parties as well as the Federal Reserve and the Biden administration to get crypto out of the broader economy. It appears to be part of what President Joe Biden called a “whole of government approach” to dealing with crypto in an executive order in early 2022, before the year’s worst excesses and accidents came to light.
There are still authorities in the US working to legitimize and regulate crypto, although some high-ranking officials such as Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), are against writing new rules. According to Gensler, the financial rules already on the books are clear enough to cover the new peculiarities of decentralized technology. Political conflicts between those who want to give crypto time to find its legs and those who prefer the knee have left the entire industry worse for wear.
Right now, ether (ETH), the second largest cryptocurrency by market capitalization and the original symbol of the Ethereum blockchain, is in a situation similar to Schrödinger’s security—stuck in a superposition of being both legal and not, largely because Gensler has said ether may and may not have conflicted with the Howey Test definition of a security.
Such legal uncertainty has led the CEO of Coinbase, the largest US crypto exchange, to say it may have to leave the country. You might say that’s an empty threat considering Coinbase’s business is built around extracting fees from US customers, but Brian Armstrong is hardly one. alone.
In all fairness, Gensler calls for common sense oversight of increasingly powerful financial rails. Boil it down to what he wants – for exchanges to register with the SEC and collect their customer identification systems – and I’m sure it’s not too far off from the EU’s new standards. Of course, the difference between the EU and the US is that one took a “whole of government” approach to dealing with crypto, while the other just says it will.
