The global encryption regulatory landscape is diverse, and while it is becoming more and more complex, many regulators still choose to wait and see how this space develops and what others do. At the moment, all attention is focused on the EU and its detailed approach to the regulation of cryptocurrencies.
As part of an expanded digital finance package announced in September 2020, the European Commission or the European Commission have released a regulatory proposal called Crypto Asset Markets or MiCA. The proposal is currently undergoing a legislative process and is the subject of intense debate. This important regulatory move has been accelerated by concerns over an increasingly fragmented national regulatory framework for cryptocurrencies in the EU.
Another important driving force behind regulatory control has been the emergence of stablecoins. Stablecoins have been around for several years – the first stablecoin, Tether (USDT), dates from 2014 – but they didn’t get much attention until June 2019, when Facebook’s Libra project (which was later renamed) was announced. In the name of Diem). This has sent a wake-up call to many governments that they have realized that global stable currencies can quickly reach a wide range due to strong network effects, and that this could have systemic implications for the financial sector.
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Crypto assets under MiCA
The European Commission has called for the capture and regulation of all cryptocurrencies not covered by current EU financial services and has proposed a detailed, comprehensive and binding regime for cryptocurrencies under the MiCA. The regulation will apply directly throughout the EU, without the need to transform it into national laws, and will replace the entire national framework. It aims to provide legal certainty for the industry and market participants, and to facilitate legal coordination.
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The MiCA establishes a set of standardized guidelines for cryptocurrencies that can already be used in general in financial markets, including transparency, disclosure, authorization, supervision, process sets, regulation, governance, consumer protection, and market abuse prevention.
MiCA provides much needed definitions and classifications for cryptocurrencies. This is a long awaited development that can help standardize the various definitions and classifications used in different European jurisdictions and different market participants. To cover the entire world of cryptoassets (excluding cryptoassets already covered by economic rules), a cryptoasset is defined in the MiCA in a very broad sense as a digital representation of value or rights that can be transferred and stored electronically using distributed ledger technology or similar technology. This means that all assets hosted on the blockchain can be subject to MiCA regulations, regardless of their nature and economic function. We must wait for the final version of the rule to see if there will be any exceptions to this broad scope in the negotiation process.
On the subject: The US has already lost the cryptocurrency race in 2020 for Europe
Asset Classes Encrypted under MiCA
MiCA defines three classes of cryptocurrency regulation:
Electronic money tokens, which are used as a medium of exchange and aim to achieve a fixed value by specifying the value of one fiat currency that is legal tender, such as the euro or the US dollar. This can include stable currencies such as the United States dollar (USDC) and single pegged coin (Libra 2.0).
Tokens are called assets that claim to maintain a constant value, meaning multiple fiat currencies that are legal tender, one or more commodities, one or more cryptocurrencies, or a group of these assets. This includes the originally proposed version of Libra (Libra 1.0), which is currently no longer tracked.
Finally, the third class of cryptoassets includes all other cryptoassets. It will cover instrument tokens and algorithmic stack coins, as well as possibly bitcoins (BTC) and other similar tokens.
MiCA offers a set of comprehensive regulatory requirements for issuers, including different licensing and operating requirements, depending on the type of cryptoassets involved. Issuers of asset-linked tokens and e-money tokens must be licensed and registered in the EU.
This is definitely good news for exporters who are already established and operating in the EU, but puts an additional burden on exporters outside the EU.