European Regulation of Crypto-Asset Markets: French Presidency Concludes with Political Agreements on MiCA and TFR
Paris, July 1, 2022 – On June 29 and 30, 2022, the European Parliament and the Council of the European Union reached provisional political agreements on two major regulatory texts that will transform the European crypto industry: the Markets in Crypto-Assets (MiCA) Regulation and the revised Regulation on Money Transfers (TFR).
MiCA and TFR: Two Sides of the Same Coin in Shaping the Crypto-Asset Industry
The past two days have marked a turning point for the crypto industry, as deliberations on MiCA and TFR continue to shape the future of European crypto markets and accelerate the creation of a safer environment for citizens eager to embrace crypto innovation.
In fact, with MiCA, Europe is creating a regulatory framework specifically designed for this new asset class. At the same time, and as recommended by the Financial Action Task Force (FATF), transfers of crypto-assets will now have to comply with the traceability and identification requirements (“travel rule”) mandated by the TFR revision.
With these two political agreements, which represent a step toward harmonizing rules across European markets, Brussels hopes to better protect its citizens while effectively combating financial crime.
“These major advances—achieved under the French Presidency—are not only crucial for the sector to ensure regulatory certainty and clarity, guarantee fair competition, and facilitate the expansion of their business within the EU through the European passport, but also for European citizens, to help them seize the opportunities offered by crypto-assets in a safe and secure environment,” said Faustine Fleuret, president of ADAN.
Between relief and regret
ADAN welcomes the outcomes of the trilogues on several key issues that had been of great concern to the sector. Excluding decentralized finance (DeFi) from the scope of MiCA was essential to avoid distorting these innovations or forcing them to develop abroad. The decision not to classify NFTs as crypto-assets by default finally acknowledges that they do not constitute a homogeneous class of financial assets. The creation of a public register of non-compliant crypto-asset service providers (PSANs), which entails restrictions on their activities, is an additional tool against unfair competition and abuses that harm European users. The proportionate approach to environmental issues will also effectively engage crypto companies in the fight against climate change.
However, despite our numerous warnings, certain issues have not been resolved and will most likely jeopardize the achievement of regulatory objectives as well as the EU’s competitiveness. Among them: increased complexity and rigidity in the stablecoin regime (while U.S. entities are already taking advantage of the opportunity to issue crypto euros in our place); the extension of reverse solicitation to crypto markets, opening a loophole in the market for non-compliant foreign players; an expansion of the scope of the travel rule to all transactions (starting from the first euro) and to those between platforms and private wallets (“unhosted wallets”); or, the systematic verification of information regarding private wallet holders for transactions exceeding 1,000 euros.
“Europe is moving faster and further than any other major jurisdiction in the world. Both regulators and businesses are aligned on the legitimate goals pursued by regulation. However, if our efforts are to converge to protect users, achieve the EU’s environmental goals, and combat financial crime—without surrendering our sovereignty to foreign players who are already larger than their European counterparts—there is one essential prerequisite: establishing European champions who embody our values and ambitions,” warns Faustine Fleuret.
It's not over until the bell rings
Technical discussions are currently underway between the co-legislators on each regulation prior to their publication in the Official Journal of the European Union. MiCA and the revised TFR will take effect 18 months after their entry into force, likely in late 2022 or early 2023, with the exception of certain provisions, particularly those concerning stablecoins. In the meantime, the industry will face numerous challenges. First, Adan strongly encourages the clarification of several rules through technical guidelines to be drafted by European regulators. This will be essential for stakeholders to properly prepare for and comply with MiCA and TFR. Next, other texts such as the AMLA and AML regulations—which will be reviewed in the coming months—will complement these regulations and, to address stakeholders’ concerns, rebalance the playing field with foreign players. Finally, certain issues were not addressed in this initial phase of regulating crypto-asset markets and will be the subject of further consideration in the coming months and years, such as the treatment of DeFi. This is why these political agreements are merely the end of the beginning for European regulation of crypto-asset markets.
“ADAN will continue to work on behalf of the sector and support it as it navigates European regulations: we must maintain our ambition to build a strong and competitive industry that remains in Europe’s sights,” Faustine Fleuret assures us.
