The European Union has become the first major economy to establish a comprehensive regulatory framework for managing cryptocurrency assets.
If cryptocurrency companies wish to operate in the EU, they will need to get a license and customer safeguards to issue and sell digital tokens, according to a new deal passed late on Thursday by the European Parliament and EU states.
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“Today we put order in the Wild West of crypto assets and set clear rules for a harmonized market,” said Stefan Berger, a German lawmaker who led negotiations on the new Markets in Crypto-Assets law. “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,” Berger added, referencing the recent slump in cryptocurrency prices.
The EU’s regulations are the first for the cryptocurrency market and will come into effect at the end of 2023. All companies that issue digital tokens or cryptocurrency tokens will be required to have a “passport” or license to serve clients in the EU. They will also be required to abide by the EU’s capital and consumer protection rules. These rules will include the supervision of token exchanges as well as the energy required for the creation and transfer of cryptocurrency assets.
Stablecoins will also be regulated when it comes to transaction sizes. Any stablecoin that is traded in Europe will be required to maintain sufficient reserves to meet redemption requests in the case of mass withdrawals, according to CNBC. If a stablecoin becomes too large, it could be limited to only fulfilling 200 million euros in transactions per day.
While the United States and the United Kingdom have discussed cryptocurrency-related regulations, they have yet to pass anything comprehensive to date. The U.S. has attempted to use established financial regulation agencies, such as the SEC, to regulate cryptocurrency, but it has been a patchwork approach, awkwardly merging the new financial technology into the established economic system. There are also concerns that cryptocurrency legislation could leave regulatory loopholes, according to Securities and Exchange Commission Chairman Gary Gensler.
“We don’t want to undermine the protections we have in a $100 trillion capital market,” Gensler said at the Wall Street Journal’s CFO Network summit. “Like behaviors should have like treatment.”
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The British finance ministry started live-testing financial market activities in early June with the hope of promoting the use of blockchain technology in the country and turning itself into a global “crypto hub.”
The EU regulations arrive after months of diving prices in the cryptocurrency market. The stablecoin TerraUSD crashed in early May, leading other cryptocurrency markets to panic. Bitcoin and ethereum prices also dropped over that period of time, leading lenders to restrict users’ ability to take their money out. These developments, among others in the cryptocurrency market, have led experts to declare the market a “crypto winter.”
