The European Parliament has signed off on the MiCA regulation, an ambitious and forward thinking law that will give the European Union its first rules to govern the crypto industry – the Parliament voted 517 in favour and 38 against to pass the Markets in Crypto Act.
The approval of the EU’s Markets in Cryptoassets, or MiCA, regulation is the first time that governments have tried to supervise the upstart industry on such a scale and follows the collapse of several big players including the crypto exchange FTX.
European Financial Services Commissioner Mairead McGuinness said she expects the legislation to come into force in July after it’s formally approved by the bloc’s 27 member states.
Specific requirements will take effect progressively, with rules governing stablecoins, for example, set to apply from July 2024.
MiCA, in development for three years, has been welcomed by crypto executives as an alternative to the US approach of policing the sector through enforcement actions.
Yet critics say the law is outdated before even taking effect as it would do little to prevent several of crypto’s recent high-profile blow-ups, and there are already calls for updates.
Europe wants to impose some order
The final approval “marks the start of a new era of regulatory scrutiny on unregulated crypto markets, which have caused massive losses to many first-time investors and provided a safe haven to fraudsters and criminal organisations for over a decade,” said Ernest Urtasun, shadow representative on MiCA and a parliament member for the Greens.
Yet “important regulatory challenges remain unaddressed and new legislative actions are urgently needed to complete MiCA with the missing pieces.”
Once implemented, MiCA will require any company offering crypto-related services in the EU to gain registration in one of the bloc’s member states, which then allows them to operate across the entire bloc.
The European Banking Authority and the European Securities and Markets Authority will be in charge of making sure crypto platforms comply with the rules, including having adequate risk management and governance processes to avoid another FTX-style collapse.
A unified EU-wide regulatory framework will likely make the bloc more attractive to digital-asset companies and put pressure on other jurisdictions to follow suit, said Alisa DiCaprio, chief economist at enterprise blockchain firm R3.
Europe has been taking market share in crypto venture capital investment from the US, data from PitchBook show.
“It would be a surprise if other jurisdictions like the UK and the US aren’t quick to follow suit and further accelerate their crypto regulatory efforts,” DiCaprio said.
“We are putting safeguards in place that would prevent companies active on the EU market from engaging in some of the practices that led certain cryptoasset operators to collapse,” McGuinness said during the parliament debate.
“As we have seen in recent months, stringent rules and supervision are very much needed because we’ve had the collapse of projects such as FTX, Terra Luna, Celsius and Voyager.
While the crypto market is still too small to trigger systemic risks, we also know that there are increasing links between crypto markets and traditional financial services.”