The European Council, the European Union’s highest deliberative body, reached agreement on Wednesday on two legislative proposals to regulate digital payments and cryptocurrencies.
Two proposals to regulate cryptocurrencies in the European Union
The two measures will now have to go to Parliament for discussion and ratification, before they become legislation.
Finance Minister Andrej Šircelj of the Republic of Slovenia, who currently holds the presidency of the European Council, said:
“Digital finance is becoming increasingly more important for the European economic environment. It is essential that we create a favourable environment for innovative companies. However, at the same time we need to reduce risks for investors and consumers. I believe that the today’s agreement strikes the right balance between the two. Both dossiers are also priorities of the Slovenian Presidency. We hope that an agreement with the European Parliament will be reached as soon as possible”.
The Markets in Crypto-Assets (MiCA) framework devotes an entire chapter of the approximately 400-page document to so-called “asset-referenced tokens”.
This is a type of stablecoin, or cryptocurrency, designed to hold its value, but unlike dollar-pegged stablecoins such as USD Coin (USDC) or Tether (USDT), these tokens are backed by a basket of different legal currencies, commodities or crypto assets.
According to some experts, the drafting of the MiCA aims to regulate projects such as the stablecoin project advanced a year ago by Facebook, called Libra (now Diem):
“It’s quite obvious and apparent that the whole proposal was drafted with the libra project in mind”.
This was stated by Patrick Hansen, a contributor to RegTrax, Stanford University’s database on fintech policy.
The other document approved is the Digital Operational Resilience Act (DORA). This act aims to create a digital operational resilience framework for all ICT-related companies to prevent and mitigate cyber threats.
Criticism of the new framework
MiCA was first published in September 2020, and was part of a larger package of initiatives on digital finance.
MiCA also referred to the DeFi market, which has experienced exponential growth over the past year, including in the European market.
But on the text of these measures came some distinctions from experts in the crypto market, such as, for example, Martin Erhold, regulatory specialist at Bitpanda, who wrote in a note that:
“Successful service providers will reap benefits of the larger EU single market and the market consolidation is expected. However, too high barriers to EU market entry may deter third-country service providers and issuers from entering the EU, risking decoupling EU from other innovative markets”.
The European Central Bank (ECB) and the Economic and Social Committee have already published their favourable opinions on the proposal. The document is now expected to be debated in plenary at the beginning of 2022 and then voted on.