Crypto companies that issue and sell digital tokens in the EU will be required to obtain a license and will be liable for the loss of crypto assets from users’ crypto wallets.
On Thursday, June 30, the European Union reached a tentative agreement on the world’s first comprehensive set of rules to regulate what one lawmaker called the “Wild West” crypto market.
What are the new rules?
Crypto companies that want to issue and sell digital tokens in an EU state will need to obtain a license from a national regulator.
The license will allow operators to serve the entire 27-country bloc from one base and will be liable for losing crypto assets from consumers’ digital wallets.
Companies currently show a national EU regulator that they have adequate controls to stop money laundering, but can only operate within that country.
National watchdogs are required to update the EU securities watchdog ESMA on any major operators they have licensed, which falls short of calls by lawmakers for a European watchdog for the sector.
So the rules are already in place?
The deal needs the formal go-ahead from EU states and the European Parliament before it enters into force, likely in 2023 at the earliest.
The rules will apply to some tokens, such as “stablecoins,” cryptocurrencies pegged to traditional currencies or commodities that aim to maintain a constant value, 12 months from the day the law takes effect. For other tokens, the rules will apply 18 months after the start date.
Crypto businesses that already comply with anti-money laundering controls will also have 18 months to obtain licenses under the new law, without service interruption.
Are stablecoins a big deal?
The May collapse of the terraUSD stablecoin triggered a sharp sell-off in crypto markets and worried regulators.
EU rules will give stablecoin holders the right to claim their money back free of charge. Token issuers will need to have minimum levels of liquidity and will be supervised by the EU’s European Banking Authority.
Crypto companies must have a registered office in the bloc to issue stablecoins, and coins based on non-European currencies will be forced to preserve “monetary sovereignty.”
Crypto industry officials say it will be more difficult to make money under such rules.
What about non-fungible tokens?
It’s complicated. Lawmakers wanted non-fungible tokens (NFTs) under the new rules, but EU states objected.
That led to a compromise where NFTs are not included, but if they become fungible (mutually replaceable), regulators can force them to comply with crypto rules. If they act like traditional securities, the strict rules of the EU MiFID markets may come into play.
The European Commission will assess within 18 months whether separate rules for NFTs are needed.
What about cryptocurrencies and climate change?
Bitcoin’s energy use is a major concern for lawmakers.
Crypto companies will have to disclose their impact on the environment and climate change, using standards to be drafted by the ESMA securities watchdog.
The European Commission will assess the environmental impact of crypto assets within two years and introduce mandatory sustainability rules, including in the energy-intensive “proof-of-work” system used to “mine” cryptocurrencies such as bitcoin.
What are other countries doing?
Japan blazed a trail among major economies by introducing a crypto law in 2017, forcing exchanges to register with its financial watchdog.
Others have been slower.
In the United States, there is no federal framework, although individual states have crypto-specific rules. Senators this month unveiled a bill to establish new rules and hand over most of the oversight to commodity regulators, though it is unclear when the rules will be approved.
Britain said in April that it would introduce rules on stablecoins, leaving most cryptocurrencies and related companies subject only to patchy regulation. – rappler.com