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Date: 2022-07-01 16:17:37
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Cryptocurrency companies will need a licence and customer safeguards to issue and sell digital tokens in the EU under groundbreaking new rules agreed by the bloc to tame a volatile "Wild West" market.
Globally, cryptoassets are largely unregulated, with national operators in the EU only required to show controls for combating money laundering.
Representatives from the European Parliament and EU states thrashed out a deal late on Thursday on its Markets in Crypto-assets (MiCA) law.
"Today, we put order in the Wild West of cryptoassets and set clear rules for a harmonised market," said Stefan Berger, a centre-right lawmaker who led negotiations on behalf of the parliament.
"The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act," Berger said.
Crypto markets have tumbled this year, pressured by the collapse of the terraUSD stablecoin and major US crypto lender Celsius Network's freezing withdrawals and transfers.
Bitcoin, the biggest token, has slumped some 70% since its November record of $69,000, dragging down the overall market.
The landmark regulation confirms the EU's role as a standard-setter for digital issues, EU states said.
"With the new rules, cryptoasset service providers will have to respect strong requirements to protect consumers' wallets and become liable in case they lose investors' cryptoassets," they added.
The deal will need formal rubberstamping by the European Parliament and EU states to become law, followed by an implementation period.
The new law gives issuers of cryptoassets and providers of related services a "passport" to serve clients across the EU from a single base.
Holders of stablecoins — a type of cryptoasset designed to hold a steady value — will be offered a claim at any time and free of charge by the issuer, with all stablecoins supervised by the bloc's banking watchdog, the European Banking Authority (EBA).
Robert Kopitsch, secretary general of the Blockchain for Europe lobby group that includes the major exchanges Binance and Crypto.com, said the rules were "a mixed bag".
"Thanks to last-minute changes, we also fear that stablecoins will basically have no ways to be profitable," Kopitsch said.
The Association for Financial Markets in Europe (AFME), a financial markets industry body, said the rules would bring certainty, reduce fragmentation, and underpin the development of a robust and well-functioning market.
More clarity is needed, however, to ensure that custodians of cryptoassets are only on the hook in cases of negligence or misconduct and not for events beyond a custodian's control, such as a nation-state hack, AFME said.
Many states, including Ireland, Lithuania, and Greece, have long opposed including nonfungible tokens (NFTs), which are digital assets representing objects from art to videos.
But under pressure from EU lawmakers, the compromise reached on Thursday night foresees that "NFTs will be excluded from the scope, except if they fall under existing cryptoasset categories".
Brussels will assess within 18 months whether stand-alone rules are needed for NFTs.
National regulators will be responsible for licensing crypto firms, but they will have to keep the EU's securities watchdog ESMA — the European Securities and Markets Authority — informed about large operators.
ESMA will develop standards for crypto companies to disclose information on their environmental and climate footprint.
The US and the UK, two major crypto centres, have yet to approve similar rules.
The company behind the major USD Coin stablecoin called the rules "a significant milestone".
"While no comprehensive body of rules is perfect … it nonetheless provides practical solutions to issues that other jurisdictions are just beginning to grapple with," US firm Circle said in a blog.
(Additional reporting by Francesco Guarascio in Brussels)