By an overwhelming majority of 573 votes in favor (38 votes against and 18 abstentions), the European Union adopted legislation on Thursday in the European Parliament – the MiCA regulation, governing cryptoactives. It was time. The resounding bankruptcies and scams of the last few months, starting with the FTX scandal (estimated at 32 billion dollars), have largely tarnished the reputation of a sector which, since its inception, has escaped excessive scrutiny. No doubt on the pretext of not hampering innovation and the famous “blockchain” (the database that records all transactions).
So is this the end of the Wild West? Christine Lagarde, the boss of the ECB, in doubt. She has already called for a second MiCA settlement. When the regulation is published in the OJ, crypto-asset platforms registered in the EU will have another 18 months to comply with the legislation. In the meantime, the European Central Bank and European financial authorities will publish guidelines so that crypto-asset providers know how to adapt to the new regulations. But in 18 months, a lot can still happen for scammed individuals. At present, consumers’ rights to protection or redress are very limited, particularly if transactions take place outside the EU.
The rapporteur, Stefan Berger (EPP), believes that MiCA will “protect the stability of the financial system” by ensuring that the business model is not dangerously oversized. He considers that “Facebook could never have seen the Libra project authorized with the new legislation”. Small assets are excluded from the legislation, which only addresses large issuers and service providers on the cryptoassets that are covered. Recall that the world leader, Binance is based in France, which wants to be a friendly country with fintech. The US financial derivatives regulator, the CFTC, has however taken legal action against Binance and its boss, Changpeng Zhao, a Canadian, accusing it of willfully circumventing US regulations.
Crypto-asset holders will have priority access to reserves. The issuer must provide a repayment plan in the event of a crisis to guarantee holders to receive the equivalent of their assets in equivalent currencies. This reimbursement must be made without delay.
The MiCA regulation specifies that the European Banking Authority (EBA) will have to maintain a public register of non-compliant crypto-asset service providers. Reinforced checks will be carried out on those whose parent company is located on the list of third countries known for money laundering or on the blacklist of tax havens. Enhanced requirements may also apply to shareholders and management of crypto-asset service providers, in particular regarding their location.
“Until now there were no EU-wide rules for crypto-assets, only diverging national laws,” Stefan Berger points out. France took the lead with initial legislation in 2019. According to Bercy, French law remains, to this day, “the strictest in Europe”. If Paris wanted to be welcoming for crypto-assets, “there was never any question of attracting players through tax or other advantages, assures Bercy. We have precisely offered a rigorous framework, a guarantee of seriousness. And that’s also what the actors who came to settle in France were looking for.
The method of regulation adopted by the Commission raises questions. Since crypto-assets are not currencies and only highly speculative financial assets, why lay down a specific regulation? “It was enough to add crypto-assets to all European financial regulation texts, notes Aurore Lalucq, MEP from the Socialists and Democrats group. Why should traditional finance be distinguished from fintech? Why different and lighter rules for crypto-assets? It is surprising that the Commission, here, does not mention the principle of the level playing field which it relies on in all other sectors. »
However, as of July 1, France is superseding the two procedures to introduce a single approval more demanding than the 2019 legislation until MiCA comes into force and further tightens the requirements.
Cryptoassets also raise environmental issues. Mining (the process of securing bitcoins) is energy intensive. With MiCA, issuers will have to publish the energy consumption of their assets. We are not solving the problem, but we are counting on users to prefer the least energy-intensive processes.
Non-fungible tokens (NFTs), i.e. digital assets representing real objects such as works of art, music and videos, are excluded from the scope of the MiCA regulations unless they fit into the existing categories of cryptoassets. Within eighteen months, the European Commission will be asked to prepare a comprehensive assessment and, if deemed necessary, it will propose a specific regulatory regime for NFTs.