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How does Europe want to regulate cryptocurrencies? We take stock of MiCA and TFR

On the string. While the French presidency of the European Union has just ended, the 27 have reached an agreement on the famous draft MiCA regulation and the framework for cryptocurrencies in the Union. How will Brussels regulate this asset class? What are the failures, the successes and what is the timetable for implementation? We take stock.

The MiCA regulatory project finally clarified

This is what marks a turning point in the industry. We knew that 2022 would be a pivotal year for regulation. And it didn’t miss.

For more than a year, the corridors of Brussels have been animated by this ” MiCA regulation project and other acronyms that aim to regulate the crypto market. A project that was to come to life under the French presidency of the European Union.

It was France’s bet, which drives part of its reflections at European level. And it’s been done since last night, Thursday, June 30, 2022.

👉 MiCA and Europe regulations – What do industry players think?

A MiCA regulation that worries the industry

Since this project is on the table of the European institutions, the industry is worried.

Cryptoast stood alongside ADAN and with French actors so that they can express their concerns in a series of videos on YouTube and in a forum for citizens and political decision-makers.

Fear of seeing Proof-of-Work (Bitcoin mining) banned from the territory, the ban on decentralized finance (DeFi), the end of euro stablecoins and non-hosted wallets like Ledger or Metamask… Many of these concerns have been heard.

“Europe must not miss out on this revolution by proposing an overly strict regulatory framework that would push companies to leave the territory to develop elsewhere”told us the CEO of Ledger, Pascal Gauthier.

Issues of European sovereignty therefore, which the former MP Pierre Person also raised in his report. As the American company Circle releases its euro stablecoin, what about these challenges?

Overview of the points discussed and the state of MiCA

“The past two days have marked a turning point for the crypto industry. These advances help accelerate the building of a safer environment for citizens willing to embrace crypto innovation.”entrusts Faustine Fleuretpresident of ADAN, the association that represents industry players.

In order to better understand the ins and outs of what has just been decided, Cryptoast interviews the latter in order to explore each facet of the cryptocurrency ecosystem that will be affected.

The entire interview is available on our YouTube podcast below or in full later in this article.

The French point of view

As far as France is concerned, standardization of the regulations attributed to cryptocurrencies as a general rule gives it a certain advantage insofar as the latter has already prepared the ground, in particular through thedigital asset service provider license (PSAN).

This considerable advance will allow French companies already authorized to extend their activities on a European scale, which will mechanically open up new markets for them. The existence of regulations will facilitate gateways in order to develop links with the traditional banking system and institutions, which naturally depend on strict regulations.

It should be noted that companies having taken the necessary steps to obtain PSAN status in France will also benefit from a 18 months to update with MiCA regulations.

Although the trilogues took place rather quickly, especially given the amount of work and the number of points to be discussed, France remains the leader, however, as a precursor concerning regulation in the environment within the European Union.

Victories for the cryptocurrency ecosystem

The first point to address here is decentralized finance, a concern within the crypto community that feared too harsh a regulation against him. As a decentralized sector strictly speaking, DeFi deserves even more thought from regulatory bodies and will therefore not be affected by the first draft of MiCA. If it had been integrated into MiCA, it would notsimply could not have existed on the continent.

“MiCA wanted to force decentralized finance players to have a legal entity in the territory, which was simply impossible”, welcomes the president.

Another positive point is theexclusion from NFT settlement, whose madness of recent months had forced the regulator to integrate into the whole. These last are now considered as a technological concept and not as a homogeneous asset. As such, they are, for the moment, unsuitable for MiCA regulations.

However, this does not mean a definitive exclusion of the latter. In fact, they could be reclassified as assets in the future in order to benefit from special supervision.

Points of regret

If the association is delighted with many victories, certain points of the regulation remain unsuitable according to the industry. This is particularly the case for transfers of funds between CASP and non-hosted walletssuch as Ledger or Metamask.

Regarding the different platforms and exchanges, these will have to agree with the travel rule relating to cryptocurrencies, and will therefore have to communicate all the information of the transactions carried out through them to another exchange platform. The transactions concerned will have neither minimum nor maximum threshold, unlike the traditional banking system, for which the symbolic bar of €1,000 had been retained.

Companies registered as PSAN will also have to communicate the information of the transactions carried out from and to private wallets (not hosted), like MetaMask or hardware wallets like Ledger, as soon as the latter exceed €1,000. On the other hand, transactions between private wallets will not be affected.

“It seems difficult to know how to distinguish addresses and to guarantee the security of this financial information, which is so precious in an all-digital mode”, worries Faustine Fleuret.

This is a scenario that raises questions about the happy medium between regulation aimed at protect the cryptocurrency holder and his own sovereignty, or regarding the disclosure of strategic flows. This can indeed raise the issue of respect for privacy or the difficulty of implementing such rules.

The points mentioned above then raise a completely legitimate question about extra-European competition, which, in most cases, can offer cryptocurrency trading. without being encumbered with a myriad of rules to respect. Thus, it will be necessary to establish communication with foreign players so that the European cryptocurrency market does not suffocate on its own.

What about mining in Europe?

If the industry still remembers the fear following the desire of certain players to ban Proof-of-Work in recent weeks, let it be reassured. Mining will not be banned on the old continent, nor integrated into the European taxonomy either. This is another victory.

However, cryptocurrency issuers will need to measure the environmental impact of the assets concerned and specify the latter to their customers. The same for European PSANs. However, clarifications must be made as to the information that will have to be specified and how it will be. A report on the environmental impact is in progress. and involve our institutions in this debate.

Stablecoins, the thorn in the side of European sovereignty?

A piquant question now, the classification of stablecoins. These must first of all be divided into 2 distinct categories: centralized stablecoins and decentralized stablecoins.

The category of centralized stablecoins is itself divided into 2 subcategories: electronic money tokens (EMT) and tokens referring to other assets (ART). A differentiation that still needs to be clarified by the various players. However, centralized stablecoin issuers will benefit from a period of 12 months to comply with the new regulations.

Decentralized stablecoins, on the other hand, may not benefit from the same exemptions as decentralized finance.

With regard to the issuance of non-euro stablecoins by Europeans, the European Central Bank (ECB) will be able to veto. In any case, they will be applied to a supply limited to 200 million euros. European citizens will be able to continue to use foreign stablecoins provided that they comply with MiCA regulations.

What can we now expect?

Note that this is still a provisional common political agreement. Things could still change in the coming months, and the MiCA regulations have yet to be formally adopted.

Many phases of consultation are to come between the actors of the ecosystem and the entities in charge of regulation, which must still issue technical standards.

Regarding the upcoming schedule, theadoption of MiCA and the TFR regulation to arrive at at least for the start of the school year this yeari.e. the month of September.

Adoption in plenary session as for it should take place at the Christmas period, either around November or December.

Official publication is expected in early 2023but its application should, for the time being, be effective for 2024 at the earliest.

Finally, once the MiCA regulations are in place, it should be noted thata review clause is provided for within 12 months.

If you want to know more, ADAN is organizing the second edition of the Crypto Finance Forum which will take place on July 18 at the Maison de la Mutualité in Paris. This event will be an opportunity to discuss the challenges to come within the crypto ecosystem, particularly in the face of MiCA regulations.

👉 Find our interview with Faustine Fleuret in full on our YouTube podcast

This dossier was produced in collaboration with Maximilien Prué, editor at Cryptoast.

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