Last week, the European Union sealed deals on two landmark crypto laws – but that political agreement is just the start for companies looking to operate in the bloc.
In two successive meetings, negotiators from the European Parliament met with government diplomats to hammer into shape its new Markets in Crypto Assets law, known as MiCA, alongside controversial identity checks contained in the Transfer of Funds Regulation.
It has been a long road. Back in 2018, the European Commission, responsible for putting forward bills, first raised concerns over unregulated coin offerings leading to investor ripoffs; its proposed draft of MiCA followed in September 2020, based on advice from EU agencies the European Banking Authority (EBA) and European Securities and Markets Authority (ESMA).
Meanwhile, the idea of checking and reporting the identity of crypto payers – based on a model from the existing banking system – stems from 2019 recommendations from the Financial Action Task Force, a global anti-money laundering watchdog.
But the legislation isn’t in place yet. Even once it is, there will be some details to be fleshed out and the prospect of more legislation.
The bill’s still not law
While the main features of the law have been agreed to in principle by lead negotiators, they have yet to publish a full text. Once the text is available, governments – which meet in the EU’s Council – and lawmakers at the European Parliament will have to make sure their demands were met. That will happen through a series of votes.
Even once a final text is entered into the bloc’s Official Journal, companies will have a transition period in which to prepare for the rules.
The European Parliament said 18 months would be enough time for exchanges to verify the identity of their customers and for crypto firms to seek authorization from national or European regulators – though companies already operating would get 18 months longer.
Given the lengthy summer break enjoyed by EU officials and the need to translate laws into the bloc’s two dozen languages, completing the bill isn’t likely to happen before this fall, with rules actually taking effect around 2024.
Details to settle
Even then, the law still won’t be fully colored in. The finer procedural details, ranging from how companies can seek stablecoin approval to cybersecurity and liquidity standards, must then be hammered out via rulemaking from EU agencies responsible for guidelines and standards.
“The full process is not finalized yet,” Marina Markezic, executive director of the European Crypto Initiative, told CoinDesk. “There's going to be a lot of work done also with different agencies, like ESMA, EBA, etc. Broad definitions will need to be filled in with some of the work from those institutions.”
Though the law applies directly to all of the EU’s 27 member nations, in practice it’s national regulators who must implement much of it. Some may end up being tougher than others, and disputes will need to be adjudicated.
“Over time, we’ll see how our different regulators and also courts might interpret” the laws, Markezic said.
Likely more to come
Emerging from the talks that dragged on for nearly seven hours last Thursday, EU financial services commissioner Mairead McGuinness didn’t seem to be enthusiastic about reopening some of the more controversial areas of the legislation. That appears to include a largely unsuccessful lawmaker bid to curb the energy-intensive proof-of-work method used to mine bitcoin (BTC).
“I wouldn't say tonight there's anything I want to do” on the environmental issue, McGuinness told CoinDesk. “At least this one [law] is over the line … I think what we need to do is complete our work program, rather than think of extra.”
Yet MiCA as drafted now remains relatively narrowly focused on issues like stablecoin reserves and investor information for initial coin offerings. It’s unlikely to be the last word in crypto regulation as policymakers look to emerging trends.
“No legislation is ever set in stone,” McGuinness said. “No legislation in the area of crypto could be … It has evolved, and is evolving.”
She will also be looking at whether other jurisdictions follow the EU’s lead – echoing an earlier call she made in The Hill for common rules against investor fraud, insider trading and environmental impacts.
“This is a global development around crypto, and therefore, it is important that there is global cooperation around it,” McGuinness told CoinDesk. “It's important that we don't regulate on our own: Others need to do so as well.”
Lawmakers who didn’t get all they wanted from MiCA or the transfer of funds may try again by amending other bills under deliberation.
Left-wing lawmakers have sought to amend EU money-laundering regulations that are already heaped on entities like banks and real estate agents to also cover Web3 innovations like NFT platforms.
Some also hope a bill on European digital identity – intended to make it easier to prove who you are online using conventional ID cards and currently being discussed by parliament committees – could be repurposed to make checks on unhosted wallets easier.
Last week was a significant step in EU crypto regulation. It won’t be the last.
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