EU reaches agreement on ‘landmark’ crypto rules

New directive will provide ‘clarity’ for the industry, says Coinbase vice president

The European Union (EU) has reached a provisional agreement on a landmark set of rules that will bring cryptoassets under the supervision of the European body that regulates securities markets.

Dubbed the Markets in Cryptoassets (MiCA) directive, the legislation will apply broadly to the crypto sector, setting common rules across all 27 member states. It marks the first time globally that politicians have attempted to supervise the sector on such a scale.

Under the rules, all cryptoasset service providers — including exchanges such as Coinbase and Binance as well as hedge funds trading in crypto — will have to be authorised by relevant national authorities in each jurisdiction and also the European Securities and Markets Authority (ESMA) before they can operate.

The EU aims to have the legislation, which will now be passed to the Economic and Monetary Affairs Committee of the European Parliament before a plenary vote, in force by 2024.

Late on Thursday, the European Parliament, European Council and European Commission approved the new provisions on the supervision of cryptoasset service providers, consumer protection and environmental safeguards for cryptoassets, including cryptocurrencies such as Bitcoin and Ether. ESMA will be responsible for oversight of the industry, while a new legal framework will seek to regulate public offers of cryptoassets to protect market integrity.

Nonfungible tokens (NFTs) that are offered to the public at a fixed price, such as for tickets to an event or as an item inside a video game, will be exempt from the new rules — although the parliament said these could be introduced under MiCA’s scope at a later date.

NFTs were a prominent point of disagreement among member states in discussions before Thursday’s final round, said people familiar with the talks.

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Several countries including the Republic, Lithuania and Hungary had opposed the inclusion of NFTs under MiCA, the people said, though some were willing to accept NFTs should they be allowed to add in a review clause.

The parliament and council also reached a provisional agreement late on Wednesday to force service providers to give identifying information on all digital asset transactions, under the so-called transfer of funds regulation.

Money laundering concerns were also addressed, with ESMA’s oversight to include a public register of all non-compliant crypto providers.

The anti-money laundering provisions directive will work in concert with the new so-called transfer of funds rules agreed earlier this week, the European Council said in a statement. Those rules are aimed at improving the traceability of transactions crypto, long viewed as a safe haven for criminals looking to stash their money in blockchain-backed assets.

In a statement, French economy minister Bruno Le Maire said the rules will “better protect Europeans who have invested in these assets, and prevent the misuse of cryptoassets”, while also ensuring that Europe remains “innovation-friendly” and competitive.

“This landmark regulation will put an end to the crypto wild west and confirms the EU’s role as a standard-setter for digital topics,” he said.

The crypto industry has broadly embraced the new rules.

Speaking in Dublin, Nana Murugesan, vice-president international and business development at crypto exchange Coinbase, said that regulation is the key to unlocking new markets in Europe. The Nasdaq-quoted company, which has offices in the capital, this week announced plans for a significant expansion into Spain, Italy and France where it will apply for e-money licences.

Mr Murgesan said the company is keen to bring its services, which are currently available in Ireland, Germany and the UK, to other European jurisdictions to increase “output” and “drive revenue” at a time when crypto markets broadly are faltering.

“For this, you need regulatory approval,” he said. “We’re not going to do this until we get the regulatory green light and the compliance green light.

“I think one philosophy that we have is, action produces information. So it’s great when the regulators are taking action because that actually drives clarity.”

Earlier this week, Goldman Sachs downgraded Coinbase to a sell rating after its share price, buffeted by a broader crash in cryptoassets, slumped more than 75 per cent this year.

Goldman analysts said the company will likely need to make further cost reductions after Coinbase announced earlier this month that it would be laying off 18 per cent of its workforce. — Additional reporting by Bloomberg

Ian Curran

Ian Curran is a Business reporter with The Irish Times