FILE PHOTO: Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on motherboard in this illustration picture

EU Passes Regulation for “Wild West” Crypto Markets

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WHAT ARE THE NEW RULES?

Cryptocurrency businesses that want to stake and sell digital tokens in an EU state will need to obtain a license from a national regulator.

This license will allow operators to serve the entire bloc of 27 countries from a single base, and be responsible for the loss of cryptocurrencies in consumers’ digital wallets.

Currently, companies are showing a national EU regulator that they have adequate controls to stop money laundering, but they can only operate in that country.

National supervisors must notify the EU securities watchdog, ESMA, of all large traders they have authorised, which falls short of legislators’ demands for a body European supervisory body for the sector.

ARE THE RULES DJ IN EFFECT?

Not yet.

The deal must be formally approved by EU member states and the European Parliament before it comes into force, likely in 2023 at the earliest.

The rules will apply to certain tokens such as “stablecoins” – cryptocurrencies linked to traditional currencies or commodities that aim to retain a stable value – 12 months after the law comes into force. For other tokens, the rules will apply 18 months after the start date.

Crypto businesses that already comply with anti-money laundering controls will also have 18 months to obtain licenses under the new law, without disrupting service.

ARE STABLECOINS A BIG PROBLEM?

For sure.

The May collapse of stablecoin terraUSD triggered a sharp sell-off in crypto markets and worried regulators.

EU rules will give stablecoin holders the right to claim back their money for free. Issuers of these tokens will be required to hold minimum levels of liquidity and will be supervised by the EU’s European Banking Authority.

Crypto companies must be headquartered in the block to stake stablecoins, and coins based on non-European currencies will be restricted to preserve “monetary sovereignty.”

Crypto industry officials claim that it will become more difficult to make money with such rules.

AND THE NON-FUNGIBLE TOKENS?

It’s complicated. Lawmakers wanted non-fungible tokens (NFTs) under the new rules, but EU states opposed them.

This has led to a compromise where NFTs are not included, but if they become fungible – mutually replaceable – regulators can force them to conform to cryptographic rules. If they behave like traditional securities, the strict EU rules for MiFID markets may come into play.

The European Commission will assess within 18 months whether stand-alone rules are needed for NFTs.

WHAT ABOUT CRYPTO AND CLIMATE CHANGE?

Bitcoin’s energy consumption is of great concern to legislators.

Cryptocurrency companies will have to disclose their impact on the environment and climate change, using standards that securities watchdog ESMA will draft.

The European Commission will within two years assess the environmental impact of cryptocurrencies and introduce mandatory sustainability rules, including on the energy-intensive “proof of work” system used for cryptocurrency “mining”. currencies like bitcoin.

WHAT ARE OTHER COUNTRIES DOING?

Japan led the way among major economies by introducing a cryptocurrency law in 2017, requiring exchanges to register with its financial watchdog.

Other countries have been slower.

In the United States, there is no federal framework in place, although individual states have rules specific to cryptocurrencies. Senators unveiled a bill this month to set out new rules and hand over most oversight to commodity regulators, but it’s unclear when the rules will be approved.

Britain said in April it would introduce stablecoin rules, leaving most cryptocurrencies and related businesses subject to only piecemeal regulation.

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