Markets in Crypto-Assets (MiCA) Law

The European Parliament’s Markets in Crypto-Assets (MiCA) law is the first detailed regulation for cryptos.

The European Parliament is the legislative body of the European Union’s 27 member states.
It has adopted the world’s first complete set of rules to put mostly unregulated cryptocurrency marketplaces under government oversight.
The Markets in Crypto Assets (MiCA) regulation will go into effect after formal approval by member states.

About
- The MiCA law addresses issues such as money laundering, consumer and investor protection, crypto business responsibility, stablecoins, and the environmental impact of crypto mining.
- It would govern the “wild west” of crypto assets and provide legal clarity to those who issue them.
- They maintain high standards for both investors and consumers.
- It also excludes non-fungible tokens.
- However, the EU may issue horizontal legislation for NFTs following a separate examination in 18 months.

Liquidity
- According to the MiCA, stablecoin issuers must retain minimum liquidity to meet any unexpectedly significant consumer withdrawals.
- The reserves would also need to be protected from insolvency.
Regulation
- The European Banking Authority (EBA) currently regulates stablecoins.
- Stablecoin issuers are obligated by law to provide free claims disclosures to investors.
Transaction limit
- The use of big coins as a form of payment will also be subject to a daily transaction limit of €200 million.
Money Laundering
- MiCA requires the EBA to maintain a public list of Crypto Asset Service Providers (CASPs) who are not compliant.
- For CASPs based in countries assessed to be at high risk of money laundering.
- Additional checks will be required in compliance with the EU Anti-Money-Laundering (AML) framework for states that are “non-cooperative” for EU tax reasons.
Environment
- MiCA requires cryptocurrency companies to declare their environmental and climatic footprints.
- The European Securities and Markets Authority will develop technical and regulatory requirements for such data’s presentation, content, and methodology.

According to Chainalysis, central, northern, and western Europe accounted for approximately 22% of the worldwide crypto business.
They obtained crypto assets worth $1.3 trillion.
Having a comprehensive framework, such as MiCA, for 27 European countries not only harmonises the crypto business.
They also provide the EU with a competitive advantage in terms of growth when compared to the United States or the United Kingdom, which lack regulatory clarity.
More importantly, 2022 witnessed some of the most significant failures and wipeouts in the crypto business, including bankruptcies and fraud scandals.
It is the failure of the cryptocurrency exchange FTX and its conflict with Binance.
As well as the failure of the Terra LUNA cryptocurrency and its accompanying stablecoin.
Due to the lack of liquidity induced by these shocks, additional crypto-lending businesses halted customer transfers and withdrawals before declaring insolvency.

MiCA will enforce compliance on crypto asset issuers, described as “any legal person who offers to the public any type of crypto asset.”
It will be applied to crypto-asset service providers (CASPs) who provide one or more of these services;
- The operation of a trading platform like CoinBase, custody and administration of crypto-assets on behalf of third parties (customers).
- The exchange of crypto-assets for funds/other crypto-assets.
- The execution of orders for crypto-assets.
- The placing of crypto-assets.
- Providing transfer services for crypto-assets to third parties.
- Providing advice on crypto-assets and crypto-portfolio management.
Depending on the type of crypto asset, the rule stipulates distinct sets of standards for CASPs.
The base regime will require every CASP to register as a legal entity in the EU.
They can obtain authorisation in any 27 member nations and then provide services in all of them.
Regulators such as the European Banking Authority and the European Securities and Markets Authority will oversee them.
They will guarantee that the companies have the necessary risk management and corporate governance practices.
CASPs must demonstrate their stability, soundness, and ability to keep fund users safe.
In addition, they must set controls to guarantee that they are not participating in proprietary trading, avoid conflicts of interest, and fight against market abuse and manipulation.

India’s crypto rules appear to be on hold for the time being.
According to industry leaders and analysts, the government and industry are more concerned with taxation.
From April, India imposed a 30% tax on revenue derived from cryptocurrency transfers, and from July 1 2022, it added a 1% tax deduction at source.
This and the overall bad market have reduced trading volumes and revenue for cryptocurrency exchanges.
Before making any definitive judgements, Indian regulators are anticipated to review guidelines being established in the United States.

Stablecoins are cryptocurrencies whose value is linked to another cryptocurrency, fiat currency, or exchange-traded commodity.
The benefits of asset-backed cryptocurrencies include stabilising the coins by assets that change outside the cryptocurrency ecosystem.
As well as the fact that the underlying asset is not correlated, reducing financial risk.
Bitcoin and altcoins are highly connected, making it impossible for cryptocurrency investors to profit from broad price declines without abandoning the market or investing in asset-backed stablecoins.

Pic Courtesy: The Hindu

Content Source: The Hindu