EU: Two crucial crypto regulations to be passed

The crypto regulations MiCA and TFR are updated. The updates to these EU crypto regulations will have a significant impact .

Patrick Hansen, Crypto Venture Advisor at Presight Capital, has an update on the EU’s plans for the two upcoming crypto regulations (MiCA and TFR): According to media reports, the Markets in Crypto Assets Regulation (MiCA) aims to Ban mining related to electricity. The second is the Transfer of Funds Regulation (TFR), which mainly targets “non-hosted wallets”.

The three leading EU institutions Commission, Council and Parliament will meet on June 30th to make the final updates to the MiCA law. Most of the important points have already been clarified and only a few are still open. Among other things, it still has to be discussed whether NFTs should be excluded from the scope of MiCA.

1/ The two most important EU crypto regulations to date, MiCA ("PoW-ban") & TFR ("unhosted wallets"), are about to be finalized by the end of June.

They have huge implications for the crypto market in the EU and beyond.

Here is a quick update thread on both regulations 👇
— Patrick Hansen (@paddi_hansen) June 25, 2022

The Commission wants the scope of MiCA to be extended to NFTs to protect consumers. The Council and Parliament now appear to have agreed, having initially opposed it. According to Hansen, the most likely outcome is an exception for NFT issuers.

However, the updated regulation will not exempt entities such as NFT marketplaces and platforms and service providers from third party NFTs. Large volume players would need a CASP license.

Table of Contents

Stablecoins and the impact of cryptocurrency on the environment

The essential aspects of stablecoins are complete. Some of the conclusions include no CASP rates for stablecoins and thorough regulatory requirements for issuers of e-money tokens (EMTs) and asset-referenced tokens (ARTs)

MiCA will also allow EU authorities to decide whether to ban the issuance of stablecoins – ARTs and non-euro EMTs – for large payments. The aspects that remain to be discussed are technical details about major stablecoins.

There will also be a discussion on the details of the oversight architecture. Will these be national law enforcement agencies or other European regulators? After lengthy discussions, the scope of MiCA will not cover the area of decentralized finance (DeFi).

The Commission will publish a new report on this next year. It will also set up a dedicated pilot for a new form of “embedded DeFi supervision”. As for the impact of cryptocurrencies on the environment, the Bitcoin ban is no longer up for debate.

However, the CASPs will require detailed disclosure. ESMA will set the requirements for each crypto asset they provide services for. For example ETH: There will be discussions about AML regulations. The aspects that MiCA covers and those that will cover TFR and AMLD (Anti-Money Laundering Directive).

Other issues set to be discussed on Thursday include implementation deadlines, the precise regulatory framework and details of previous issues. The parties are confident of completing all negotiations by the end of this month. After that, they will formally vote on the adopted compromise in the plenary session of Parliament before the MiCA becomes law.

The TFR negotiations

Hansen explained that the TFR negotiations could take longer because they are currently controversial. However, some conclusions have already been drawn. The scope of the TFR will not extend to P2P transfers (wallet <> wallet). Also, all crypto transfers will fall under the TFR. However, there will no longer be a €1,000 cap on the application of these AML regulations.

Verification of non-hosted wallets is one of the contentious issues. Parliament wants the CASPs to identify other non-hosted wallets. However, the Council and the Commission do not support this. Both cite economic and AML reasons for their decision.

The Council made an alternative proposal. He suggested that CASPs should study AML risk based on blockchain analysis. Then they should use the result to take additional risk mitigation actions. These two EU crypto regulations are important for the market because they will likely set a precedent for crypto regulation in other regions.