The European Parliament and European Union (EU) member states have agreed to strengthen rules and parameters to control what they consider the ‘wild west’ of the financial markets — the crypto world. On Thursday (30 June), the 27-nation political bloc established new regulations to safeguard crypto traders within the union.  

Being decentralised finance, crypto assets are uncontrolled globally. As such, national operators in the EU are needed to implement protective measures for traders and anti-money laundering procedures.  

The Markets in Crypto-assets (MiCa) law is set to take effect by the end of 2023. It will be the first attempt to establish standard crypto regulations across the EU instead of a variety of state rules, as is currently the case. 

According to the legislation, a crypto-asset service provider will need authorisation from one of the national market regulators of the EU to passport its services across the Union. The ESMA (European Securities and Markets Authority), the pan-European regulator, will then receive information from local regulators. 

Stefan Berger, the centre-right German Member of the European Parliament (MEP) who oversaw negotiations on behalf of the parliament, said during the discussion of the new regulations that ‘[the EU has put] an order in the wild west of crypto assets and set clear rules for a harmonised market’. 

Berger added, ‘the recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act.’ The market’s overall size has decreased from $3 trillion (£2.5 trillion) last year to less than $900 billion over the same period. 

When Voyager Digital, a cryptocurrency broker, said it had ceased withdrawals, trading and deposits to its platform on Friday (01 July), the market for digital assets saw additional volatility. 

Voyager chief executive Stephen Ehrlich said the decision allows the business ‘additional time to continue exploring strategic alternatives with various interested parties.’ Compared to the $1.1 billion in crypto assets it had lent, US-based Voyager reported the value of the crypto assets it currently controls is $685 million. 

Following the failure of the TerraUSD and Luna tokens last month, the value of cryptocurrencies was put under pressure, and this month, major US-based Bitcoin lending company Celsius Network froze withdrawal and transfers. 

According to Ernest Urtasun, Spanish MEP for the Green Party in the parliament, MiCA would be the first comprehensive regulatory framework for crypto assets in the world and will include robust safeguards against market misuse and manipulation.  

The law grants ‘passports’ to cryptocurrency asset issuers and service providers, allowing them to serve clients throughout the EU whilst adhering to capital and consumer protection regulations. MiCA does not apply to non-fungible tokens (NFTs), a market worth $40 billion last year. 

Neither the UK nor the US, two major crypto hubs where regulators are calling for tighter consumer protection, have approved a regulation similar to MiCA.  

The Financial Conduct Authority in the UK is considering ideas on how to advertise cryptocurrency to consumers that may have a substantial impact on the ability of crypto exchanges to operate in the country. 

Although one expert suggested that the MiCA law might not be duplicated, it is anticipated that it would serve as a benchmark for other regulatory frameworks around the world. 

European Central Bank in Action 

This week, the European Central Bank (ECB) is expected to issue a warning to Eurozone nations about the risks of national regulators getting ahead of impending EU cryptocurrency legislation and the challenges of establishing effective oversight of the quickly developing ‘wild west’ industry. 

A comprehensive set of standards and rules for the crypto business was approved by the EU Commission last week. MiCa is scheduled to become law next year, but the central bank is worried about a confusing patchwork of national legislation managing the overlap between banks and cryptocurrency companies before the package is fully implemented 18 months later. 

So far, Germany has taken the most initiative to control virtual currencies. To comply with German banking law, it utilised the EU’s 2020 anti-money laundering regulation to mandate businesses that keep and enable trading of cryptocurrency assets on behalf of clients to apply for special licenses. 

The Netherlands and other nations in the Eurozone initially directed their attention to registrations for compliance with anti-money laundering laws. However, after Russia’s invasion of Ukraine showed the potential for cryptocurrency to be used for criminal purposes including evading sanctions, several other nations have started considering more extensive measures.  

The ECB is concerned about the possibility of deciding on crypto-related license applications made by banks in the absence of a pan-European regulatory framework.  

Tougher rules, Bolder solutions

With new and tougher regulations in the cryptocurrency market comes stricter reporting and compliance requirements. For crypto traders and crypto fund managers, this will be an additional burden. This is where we enter. Bolder Group is a global fund and compliance administrator with 18 locations over the world and a team of crypto experts and compliance officers with whom you can entrust your fund administration and reporting needs.  

We keep ourselves informed of the latest in the industry, including regulations and legal, reporting and administrative requirements. If you need crypto fund administration and compliance solutions, you have come to the right place. Contact us to get started.