The European Union has agreed on the legal text for licensed crypto firms, by passing the landmark Markets in Crypto Asset regulation (MiCA).
The legislation will now need to pass through a further vote in the European Parliament next week and if approved, the laws under MiCA would commence at the start of 2024. The scope of MiCA covers issuers of unbacked crypto assets, stablecoins, trading venues, and wallets alongside rules to reveal the identity of persons transacting cryptocurrencies.
In June 2022, the European Council and European Parliament reached a provisional agreement on MiCA, marking the first comprehensive EU stance on cryptocurrencies. Back in June, The move came a day after the European Council, European Parliament, and The European Securities and Markets Authority (ESMA) finalised measures aimed at decreasing money laundering in crypto.
Under the regulation, stablecoins like tether and Circle’s USDC will be required to maintain ample reserves to meet redemption requests in the event of mass withdrawals. Stablecoins that become too large also face being limited to EUR 200 million in transactions per day.
Under MiCA, any credit institution, cryptoasset service provider (CASP), or investment firm that provides custodial services must be based in the EU. In particular, this will impact crypto exchanges and stablecoin issuers, with the vast majority of these players headquartered outside of the EU, as AltFi explains.
MiCA also aims to regulate insider trading, unlawful disclosure of inside information, along with other market manipulation concerts related to cryptocurrencies to preserve the integrity of the market. Under MiCA, crypto operators have the obligation to declare information on the environmental footprint, even tough no ban on a proof-of-work consensus mechanism is stipulated in the regulation.
ESMA will be maintaining a register of all non-compliant cryptoasset firms.
Under MiCA, cryptocurrencies have been categorised into three different types:
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