Regulation of cryptocurrency is a hot topic in jurisdictions worldwide. That’s certainly the case in the EU at the moment, so let’s take a look at European crypto regulation.
While some argue that the regulation of cryptocurrency goes against the decentralised ethos of the industry, it is an important tool to combat crypto crime and protect consumers.
Whether you favour increased regulation or not, you need to be aware of the rules, or you risk running into trouble.
As the debate rages among European Union members, here I outline some of the current thinking on crypto regulation in Europe.
European Crypto Regulation
We begin with the Markets in Crypto-assets (MiCA) Regulation. MiCA came into existence in 2020. Its primary role is to provide a legal framework for crypto-asset markets to develop within the EU.
The focus is to encompass crypto-assets not already covered under existing financial services legislation.
While many governments and large financial institutions have little love for cryptocurrency, they cannot ignore it. The number of crypto businesses increases daily, and more people are participating in the industry all the time.
Unfortunately, crypto crime has also increased. From fraud to money laundering, it is clear that action is needed to make the industry a safer space. In addition, a lack of regulation has allowed unsustainable crypto products to enter markets, costing investors huge sums of money.
MiCA is claimed to support innovation and fair competition in the crypto space by creating a solid support structure for providing services connected or related to crypto-assets. It also ensures that it protects consumers and investors, alongside integrity in the crypto-asset markets.
MiCA is responsible for guarding the crypto space from those looking to take advantage of it. It seeks to protect the crypto market from fraud, money laundering, and criminal activities linked to the likes of drug and arms dealing, and terrorism financing.
European Proposals on Crypto Regulation
The Economic and Monetary Affairs Committee (ECON) produced a report on the European Commission’s proposal regarding the Markets in Crypto-assets (MiCA) Regulation. This report was adopted on March 14, 2022, and published by the European Parliament on March 23, 2022.
MiCA Details
The proposed regulations consist of three main elements to ensure uniformity in regulating crypto-assets within the EU. They are:
- Having a uniform legal framework for crypto assets: This element passed, as it covers compliance with transparency, disclosure, authorisation, and supervision of transactions and follows a growing trend of regulatory oversight of crypto-assets worldwide
- Combatting market manipulation and financial crime and protecting consumers: This second element, like the first one, also passed. It will develop measures to combat money laundering and terrorist financing. It would also create a framework to strengthen supervision to maintain consumer protection and market stability
- Including crypto mining in the EU taxonomy for sustainable activities: This element was voted out, unlike the first and second elements. It was meant to limit the use of Proof of Work (PoW) in cryptocurrency mining. Mining cryptocurrencies consumes a high amount of energy, and this is believed to cause damage to the environment. Although this element was ruled out, there was an alternative to limiting the use of PoW. Crypto-assets must still be subject to minimum environmental sustainability standards to prevent causing severe damage to the environment. The sustainability of cryptocurrencies is a thing of concern to the world at large as it affects everyone
With increasing concern about the impact of cryptocurrency on the environment, this third element is likely to be revisited.
Ongoing Regulatory Reviews
As in many global jurisdictions, European crypto regulation will likely be subject to regular review and updates. Cryptocurrency is a constantly developing industry, so the rules need to be adapted to deal with new products, markets, and threats.
