The European Parliament has approved the world’s first comprehensive regulations to govern cryptocurrencies, hoping to protect investors against abuse and manipulation.
The legislation has already been backed by EU member states, covering cryptoassets such as bitcoin, ethereum, and other tokens whose value is secured using blockchain technology, including non-fungible tokens (NFTs). The rules aim to whip into shape an industry that has been beset by scandals and failures.
The regulations, known as Markets in Crypto Assets (MiCA), require cryptoasset service providers (CASPs) to protect customers’ digital wallets, and will be liable if they lose investors’ cryptoassets. Large providers will also have to disclose their energy consumption to reduce cryptocurrencies’ high carbon footprint.
A second regulation on fund transfers will lead to greater oversight of cryptoasset trades, making it harder for criminals to use them for illegal activity, such as money laundering. The regulations have been hailed as marking the end of the “Wild West era” for the unregulated world of cryptoassets, bringing it more closely into line with traditional finance practices.
Critics have claimed that the regulations do not go far enough, with some suggesting that significant CASPs should be subject to stricter requirements and enhanced supervision. Others have suggested that the regulations would block innovation, but EU commissioner for financial services, Mairead McGuinness, dismissed this suggestion, saying that having a regulatory framework would allow the industry to evolve in a more cohesive and safer environment.
The rules will progressively come into force from July 2024 after EU member states formally nod them into law. The EU is also preparing to introduce proposals for a digital euro later this year.
McGuinness said during a parliamentary debate that the rules would have regulated the activities of the FTX platform and its sister trading house Alameda Research, whose bankruptcy dissolved a virtual trading business that at one point had a market value of $32 billion. She added that she hoped the rules would become a model for other countries.