The European Union aims to reduce regulatory fragmentation
Cryptocurrencies are legal across the European Union, but exchange regulations depend on individual member states. The main aim of the European Commission is to reduce market fragmentation and allow companies who received crypto authorization in one EU country to provide their services everywhere. This blog reviews the current state of EU crypto regulations.
Cryptocurrencies have been recognized in the EU since 2012 when the union wrote about them as a growing trend. Since then, the union has continued to release guidance, trend analysis, and regulations about these digital assets. Some of the earliest crypto exchanges in the EU were located in countries such as Malta and Estonia.
In 2018, the EU started formulating the 5th Money Laundering Directive. This directive aimed to regulate all crypto exchanges and track suspicious transactions. It is also important to note that historically, most crypto regulations in the EU were formulated at the union level rather than a country level. However, in recent years, certain countries, such as France, have developed their own guidelines.
At present, cryptocurrencies and crypto-assets are classified in the EU as qualified financial instruments (QFIs). As a result, EU laws do not prohibit banks, credit, or investment firms from holding, gaining, and offering services in crypto-assets and cryptocurrencies.
Some specific EU member states exchange do have registration requirements with their regulators, such as France’s Autorite des Marches Financiers (AMF), Italy’s Ministry of Finance, Germany’s Financial Supervisory Authority (BaFin).
The European regulatory environment is maintained by individual countries, with each of them having its own set of rules. However, in recent years, the European Union has slowly begun to show an increased interest in harmonizing the European regulations of digital assets.
In January 2020, the 5th Anti-Money Laundering and Counter-Terrorist Financing Directive (5AMLD) came into effect. Under 5AMLD, cryptocurrency businesses are considered obligated entities, which means crypto companies must comply with Anti-Money Laundering laws and fulfill data-sharing obligations. Further, crypto providers have to register their businesses with local authorities in the EU.
In September 2020, the EU Commission published a proposal named Market in Crypto-Assets Regulation (MiCA). This proposal aims to add more digital resilience in the financial sector. It is a 168-page document that has rules that regulate stable coins and crypto asset providers.
Under MiCA, it became mandatory that all issuers, twenty days before the emission of their crypto-assets, first publish a white paper and send it to their national financial supervisory authority. MiCA also makes rules against insider trading and market manipulation on crypto trading platforms.
Further, in December 2020, the 6th Anti-Money Laundering and Counter-Financing Directive (6AMLD) was announced. Crypto firms across the EU were required to comply with this directive by June 2021. This new directive focuses on toughening criminal penalties and expanding the scope of the existing legislation. Under the 6AMLD, criminal liability has also been changed to include the prosecution and punishment of legal persons.
Crypto asset regulation has morphed from niche conversation to a priority-level agenda that grows throughout the highest political institutions on the European continent. MiCA has all types of crypto assets that are not yet covered by EU financial law, and it isn’t easy to estimate when MiCA comes into power accurately, but it will take at least two years to apply.
To conclude, it is evident that the EU has been taking significant steps in order to ensure that various types of digital assets are regulated efficiently. In addition, there has been a renewed push towards protecting customers’ interests by creating blanket rules.
For more information about crypto regulations in the EU and methods to comply with them and protect your business’s customers and assets, please contact [email protected].