Over the past two weeks, the European Parliament approved two bills on the regulation of the cryptocurrency market at once. What are they? And what do they mean for investors?

Regulation of information on the movement of funds

The law that
was accepted The first is called Proposal for a regulation on information accompanying transfers of funds and certain crypto-assets. What is offered here?
First, the legislators say that their main motive for passing the law was “the fight against terrorism and money laundering.” The document provides for companies making payments in crypto assets within the European Union, the mandatory collection of information about the payer and recipient. In general, this should be the following data:

  • the name of the payer and payee;
  • account number of the payer and payee;
  • the address of the payer and payee, including the country and official number of a personal document (for example, a passport), as well as an identification number, or date and place of birth.

The greatest attention is paid to transfers exceeding 1,000 euros. If they receive requests from the authorities, then providers will have to provide more information than for transactions less than this amount.

Translation providers should put in place “effective systems” to determine whether the required information is complete. If during the transfer the fact of the absence of some data is established, the transaction should be rejected. Or a request must be made to provide the missing data.

All crypto providers will be required to have in place an internal policy to control the introduction of restrictive measures. Separate instructions will be given on how to build it 18 months after the entry into force of the law.

All organizations that deal with translations will be required to provide the necessary information to the authorities upon request without delay. If it is aimed at preventing money laundering or terrorism.

All information collected by crypto payment providers must be protected in accordance with EU standards. Clarifications and clarifications on this subject should be issued soon by the European Data Protection Board (EBA).

Data on payers and payees must be kept for five years. In some cases, the period can be extended for another five years: when one of the EU members makes a request for the preservation of data in connection with the investigation of a case of terrorism or money laundering.

For non-compliance with all of these obligations, service operators may be subject to administrative or criminal sanctions through the courts.

A year after the entry into force of the law, the European Commission will have to return to the consideration of the law and make changes if necessary. And after 18 months, in tandem with the EBA, the European Commission must assess the risks that exist in the transfer of payments, and propose new amendments.

The Law enters into force on the 20th day following its publication in the Official Journal of the European Union.

MiCA

second law
became MiCA. The document was created to regulate the crypto assets market. This is by and large the first large-scale project of its kind.

MiCA defines a crypto asset as “a digital representation of a value or right that can be transferred or stored electronically using distributed ledger technology or similar.” The law distinguishes between the concepts of a token and a cryptocurrency.

In addition to the definition of terms, MiCA describes the requirements for market players. First of all, to those who issue crypto assets, and to those who are engaged in their transfer – service providers related to crypto assets. The former must provide comprehensive information about the assets they issue. Crypto providers must register and implement anti-money laundering measures.

The MiCA clearly describes the crypto assets to which the regulation applies. In accordance with it, there are:

  • asset-referenced tokens or ARTs for short – cryptocurrencies whose value is linked to a commodity or fiat currency;
  • Electronic money tokens (EMTs for short) are cryptocurrencies pegged exclusively to one fiat currency. The difference with ARTs is that holders of the former cannot demand that their investments be exchanged for fiat money at any time, but in the case of EMTs they can;
  • cryptocurrencies other than ARTs and EMT’s.

Like the Proposal for a regulation on information accompanying transfers of funds and certain crypto-assets, MiCA will enter into force 20 days after publication in the Official Journal of the European Union. All regulations will come into effect in 2024.

What are the market implications of both laws?

Market Implications

Probably the biggest loss from these two initiatives will be the smaller players who make transfers in cryptocurrencies. These are all sorts of small crypto exchangers and P2P services. In order to continue their activities in the legal field, they will have to collect a lot of information about customers and provide them on demand. Not many people will like it. And if this is implemented in practice as described on paper, it will be much easier for the authorities to interact with large crypto exchanges, such as Binance, Coinbase and others.

In general, control over transfers is being strengthened. EU authorities, in fact, want to control all transactions in excess of 1,000 euros. At the current rate, this is about 0.04 BTC.

On the other hand, the introduction of both laws into force may have a positive effect on everyone who considers cryptocurrency solely as a speculative or investment asset. If privacy is not very important to you, and cryptocurrency is just a way to earn money, then regulation has positive aspects for you. In theory, there will be much less opportunities to run into scammers. However, in the event of a hacker attack on a crypto exchange, due to the fact that it will collect much more information about you and systematize it in a convenient form, scammers will be able to get hold of a large amount of additional information.

It is important to note that these bills will not be the final point. It is announced that after a certain time they will be revised taking into account new data. Legislators will look at how the document works and what does not work in it. Then make additional edits.

The trend may be the emergence of similar laws in other regions of the world. But it won’t be fast. Both MiCA and Proposal for a regulation on information accompanying transfers of funds and certain crypto-assets are not new projects. It took several years to agree on them. The crypto industry is only just beginning to open up a little bit, but is still mostly a dark spot for lawmakers.

Another possible consequence is the development of DEX platforms and “shadow decentralized services”. Obviously, among the users of cryptocurrency there are those who, for various reasons, do not want to show additional information about themselves and their transfers to the regulators. The popularity of individual coins with increased data privacy and privacy within their blockchains is possible.

It is also worth focusing on the unanimity with which lawmakers
accepted both laws. According to the first of them, 529 parliamentarians were in favor and only 29 were against, with 14 abstentions. For the second, 517 in favor and 38 against, with 18 abstentions. In both cases, support was expressed by more than 90% of the representatives of the European Parliament.

Specifically, the emergence of laws on the markets is unlikely to have a strong impact. This is similar to what happened at the beginning of the 20th century with the stock market. Initially, it had much more freedom. But later legislators introduced a number of restrictions. However, the trade continues to this day. The same will happen with cryptocurrencies.

Thus, legislators in the European Union turned out to be surprisingly unanimous about the restrictions for the crypto industry. However, the laws have not yet come into force. The greatest damage from documents should be suffered by small players: crypto exchangers and P2P sites.

This material and the information in it does not constitute individual or other investment advice. The opinion of the editors may not coincide with the opinions of the author, analytical portals and experts.