MiCA passes final European Union vote

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The European Parliament approved the European Union’s landmark digital asset legislation on Thursday, providing a rubber stamp to a host of new rules governing digital assets and digital asset service providers doing business in the region.

The rules, known as the Markets in Crypto-Assets Regulation (MiCA), passed by 517 votes to 38. It will now be sent to the European Council for approval, and the rules are not expected to come into force until 2024.

“This puts the EU at the forefront of the token economy with 10,000 different crypto assets. Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust,” said Stefan Berger, the lead MEP for the MiCA regulation.

“Consumers will have all the information they need, and all underlying risks around crypto-assets will have to be monitored. We secured that the environmental impact disclosure will be taken into account by investors in crypto assets. This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US,” he added.

EU Commissioner Mairead McGuinness heralded the vote as a “world first” that would be “protecting consumers and safeguarding financial stability and market intregrity.”

Under MiCA, digital asset service providers—such as exchanges and wallet providers—must obtain a license from national regulators in order to offer services to EU citizens. As part of this licensing requirement, service providers must comply with a host of new mandates intended to improve transparency and reduce the risk posed by digital assets to investors and financial stability. This includes requiring service providers to demonstrate that they are stable, can safeguard user funds, adhere to prudential standards, have controls to ensure that they are not engaging in proprietary trading, avoid conflicts of interest, and can defend against market manipulation.

One of the more specific licensing restrictions is that all members of an entity’s management must be free of any criminal record or any penalty under “commercial law.”

The European Securities and Markets Authority (ESMA) will also set up a public register for non-compliant digital asset service providers operating without authorization.

There are also specific provisions addressing stablecoins. Like other digital asset providers, stablecoins must obtain a license from a national regulator to do business. Stablecoin issuers must also hold a 1:1 reserve of assets, and those holding stablecoins must be allowed to claim their value from the issuer without incurring additional charges. Stablecoin issuers in the EU will also fall under the jurisdiction of the European Banking Authority.

The long road to regulation

MiCA has had a long road to get to this point. The changes have been brewing since September 2020, and were introduced as part of the European Union’s digital finance strategy. Provisional agreement on the text of the legislation was reached in June 2022, but it has gone through many revisions between 2020 and now.

Rules governing non-fungible tokens (NFTs) were initially expected to be included in the legislation, but these were discarded in negotiations.

Similarly, a blanket ban on proof-of-work was once on the table but was ultimately abandoned.

The vote itself has also been subject to delays. Today’s vote was originally scheduled for February but was delayed due to problems translating the proposed 400 pages of legislation into the bloc’s 24 official languages. The vote was rescheduled to April 19, but a schedule reshuffle pushed it to pack to today.

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