EU introduces regulation of crypto and could become leader in web3

The European Union has obtained final approval from member states for its comprehensive set of strengthened regulations on cryptocurrencies, solidifying the bloc’s position as a global leader in overseeing the dynamic industry. The package of rules, known as Markets in Crypto Assets (MiCA), has been adopted by the European Council, marking the final stage in the legislative process.

Following the endorsement by European Parliament lawmakers in April, the rules are scheduled to be implemented gradually starting from July 2024. This heightened scrutiny by European authorities stems from a series of high-profile crypto scandals, including the collapse of FTX, a trading firm, and the implosion of the TerraUSD stablecoin. The primary objectives of these rules are to enhance transparency, combat money laundering, and regulate stablecoins, which are digital currencies typically linked to a fiat currency or a commodity like gold, thereby reducing their volatility compared to traditional cryptocurrencies. The regulations also encompass other digital tokens and bitcoin-related services such as trading platforms and digital wallets, although bitcoin itself is not directly subjected to these rules.

Elisabeth Svantesson, the Swedish Finance Minister, emphasized the urgent need for imposing regulations to safeguard European investors and prevent the exploitation of the crypto industry for illicit activities such as money laundering and financing terrorism. MiCA, which has been in development since 2020, introduces a requirement for crypto companies to obtain approval to operate within the European Union, as well as assuming liability in the event of the loss of investors’ assets. Authorities will compile a public list of noncompliant companies to ensure accountability and transparency.

Moreover, the regulations also address concerns regarding market manipulation and insider dealing by introducing provisions to combat these practices. Companies involved in issuing or trading crypto assets will be obligated to disclose information related to the risks, costs, and charges faced by consumers. Additionally, major crypto companies will be required to disclose their energy consumption, as the substantial energy usage associated with bitcoin mining has raised concerns about the industry’s carbon footprint. While the United States has made limited progress in strengthening oversight of cryptocurrencies, and the United Kingdom is still in the process of reviewing feedback on proposed crypto regulations, certain European countries like Germany have already implemented basic regulations pertaining to cryptocurrencies.