For it to take effect, the new legislation, which includes both stablecoins, which are backed by fiat currencies, and other assets, issuers, and wallets, still needs to be officially approved by the Council and Parliament.
In any case, it is expected that the rules will come into force in 2024. However, the regulation provides a transition period for market agents to adapt, which will only take effect after final approval.
The regulation aims to promote greater security
The goal of the initiative is to create means to protect investors from possible risks associated with crypto assets, establishing, for example, some strict standards for issuers of stablecoins, as well as standards for companies to operate in the European Union.
It is worth explaining that establishing further rigor for stablecoin issuers gained momentum after the recent collapse of Earth, with the fall of its currency (LUNA), which was trying to maintain parity (US$1) based on algorithms.
“The rapid evolution of this market confirms the urgent need for a comprehensive regulation that is valid for the entire European Union”, said Bruno Le Maire, French Minister of Economy, Finance, and Industrial and Digital Sovereignty.
According to him, the MiCA will better protect Europeans investing in crypto, prevent misuse of assets, and be conducive to innovation.
MiCA creates standards for agents operating in the European Union
To promote greater security, the MiCA ensures that crypto asset service providers (CASPs) will need to comply with several regulations to operate in the region:
- Agents (CASPs) will need permission from national authorities to be able to operate in any EU country and will declare the necessary information to the European Securities and Markets Authority (ESMA);
- Issuers of euro-pegged stablecoins must prove a liquidity reserve sufficient to support 100% of possible withdrawals;
- To protect the sovereignty of the euro, the MiCA establishes that CASPs wishing to issue stablecoins pegged to other currencies or assets must open an entity in the European Union, to be subject to local regulation;
- If users lose assets stored in their wallets, CASPs will be legally liable;
- Companies based in countries considered high risk for money laundering that wishes to operate in EU countries would have to pass the checking rules that already exist in Europe.
The MiCA proposal does not include non-fungible tokens (NFTs), a topic that has been given a further 18 months to be regulated within EU limits.
Furthermore, the rules will not affect tokens, such as bitcoin, without issuers. However, trading platforms must warn investors about the risks associated with digital assets.