On Thursday, the Members of the European Parliament overwhelmingly endorsed the initial piece of EU legislation pertaining to the monitoring of cryptocurrency transfers. The legislation, approved by 529 votes in favor, 29 against, and 14 abstentions, focuses on tracing the movement of crypto-assets such as bitcoins and electronic money tokens. The aim of the legislation, which was provisionally agreed upon by Parliament and Council negotiators in June of 2022, is to ensure that crypto transfers can be monitored and suspicious transactions blocked, as is the case with any other financial operation. The “travel rule,” which is already utilized in traditional finance, will now encompass transfers of crypto assets. To ensure transparency, information regarding the source of the asset and its beneficiary will have to accompany the transaction and be saved on both sides of the transfer.
Furthermore, the legislation would extend its reach to transactions exceeding €1000 from self-hosted wallets, which refers to the wallet address of a private user, when they engage with hosted wallets that are managed by crypto-assets service providers. However, the regulations do not apply to peer-to-peer transfers executed without the involvement of a provider or to transfers between providers acting independently.
Crypto-assets get uniform EU market rules
The Plenary has given its final nod to the new set of regulations aimed at supervising, safeguarding the environment and protecting consumers of crypto-assets, including cryptocurrencies, with an overwhelming 517 votes in favor, 38 against, and 18 abstentions. The MiCA draft legislation was informally agreed upon with the Council in June of 2022 and is designed to regulate crypto-assets that fall outside the purview of existing financial services legislation.
The proposed regulations cover key aspects such as transparency, disclosure, authorization, and supervision of transactions involving those who issue and trade crypto-assets, including asset-reference tokens and e-money tokens. The consumers will be furnished with better information concerning the costs, charges, and risks linked to their operations, while market integrity and financial stability will be supported by regulating the public offerings of crypto-assets.
Moreover, the agreed-upon text contains measures to combat market manipulation, money laundering, terrorist financing, and other criminal activities. To address the risk of money laundering, the European Securities and Markets Authority (ESMA) is required to create a public register of non-compliant crypto asset service providers that function in the European Union without authorization.
To mitigate the high carbon footprint of cryptocurrencies, significant service providers will be obligated to disclose their energy consumption.
Quotes by rapporteurs
Stefan Berger (EPP, DE), lead MEP for the MiCA regulation, said: “This puts the EU at the forefront of the token economy with 10 000 different crypto assets. Consumers will be protected against deception and fraud, and the sector that was damaged by the FTX collapse can regain trust. Consumers will have all the information they need and all underlying risks around crypto-assets will have to be monitored. We secured that the environmental impact disclosure will be taken into account by investors in crypto assets. This regulation brings a competitive advantage for the EU. The European crypto-asset industry has regulatory clarity that does not exist in countries like the US.”
Ernest Urtasun (Greens/EFA, ES), co-rapporteur for the Economic and Monetary Affairs Committee on crypto-asset transfers said: “Currently illicit flows in crypto-assets are moved swiftly across the world, with a high chance of never being detected. The Recast of the TFR will oblige crypto-asset service providers to detect and stop criminal crypto flows and also ensure that all categories of crypto companies are subject to the full set of anti-money laundering obligations. This will close a major loophole in our AML framework and implement in the EU the most ambitious travel rule legislation in the world so far, in full compliance with international standards.”
Co-rapporteur for the Civil Liberties, Justice and Home Affairs Committee Assita Kanko (ECR, BE) said: “Parliament and Council have found a fair compromise that will make it safer for people of good will to hold and trade crypto assets. However, it will make it more difficult for criminals, terrorists and sanctions evaders to misuse crypto assets. Any administrative burden on crypto companies and innovators will be more than offset by the fact that we are unifying the currently fragmented European market that has 27 regulatory regimes.”
Next steps
The texts will now have to be formally endorsed by Council, before publication in the EU Official Journal. They will enter into force 20 days later.
In adopting this legislation, Parliament is responding to citizens’ expectations to set safeguards and standards for the use of blockchain technology as expressed in Proposal 35(8) of the conclusions of the Conference on the Future of Europe.
