Europe tightens its regulatory nets on cryptos - Finance

Europe tightens its regulatory nets on cryptos – Finance

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Two regulations have been the subject of agreements that will seriously frame cryptos. In particular, they put an end to the anonymity of transactions.

While the crypto planet has been shaken for weeks, trading platforms are laying off workers and the specialized fund Three Arrows Capital, which managed 10 billion dollars of assets invested in cryptocurrency, is bankrupt, the regulatory net tightens.

A series of European regulations are indeed trying to bring decentralized finance into the regulatory field.

Last week, an agreement was reached between the Parliament, the Council and the Commission on new rules aimed at improving the traceability of crypto asset transfers. This text fills the gap that existed, in terms of the fight against money laundering, between traditional finance and crypto assets. For traditional fund transfers (transfer, etc.), international regulations have long required service providers in charge of these transfers to transmit information on the originator and the beneficiary (their domicile, the numbers of their identity ). This is called the “travel rule”. But crypto assets not being considered as currencies, passed through this regulation. This is no longer the case now.

The end of anonymity

The trilogue agreement (Parliament, Council, Commission) indeed extends the “travel rule” to transfers of active crypto. This means that the same information that banks must send when making an international transfer on behalf of a client will now have to be sent by cryptocurrency exchanges. These platforms will also have to comply with due diligence standards. They will need to know their customers and take reasonable steps to be able to recognize suspicious behavior on the part of their customers. They will also have to put in place procedures to fully comply with sanctions, such as those targeting Russian oligarchs and officials.

“For too long, crypto assets have remained under the radar of our repressive authorities, observes Assita Kanko, the MEP (N-VA) who was one of the two chief negotiators (with the Spaniard Ernest Urtasun, Green) of the European Parliament on this file. For too long, terrorists have used cryptocurrencies to raise funds. Cryptocurrencies have facilitated access to child pornography and laundered the proceeds of criminals. It has harmed the real lives of real people and questioned the crypto industry as a whole. Today, she adds, we have taken a big step to address these issues. The misuse of crypto assets will be much more difficult and innocent traders and investors will be better protected. The extension to the crypto world of the travel rule that has existed for many years in traditional finance, will make this world safer.”

Protected consumers

A crypto world all the more secure as in parallel another European text called MiCA (Markets in Crypto Assets) will also regulate the crypto asset market. The Presidency of the Council and the European Parliament have reached a provisional agreement on this text which aims to regulate issuers of crypto assets as well as the trading platforms and wallets where crypto assets are held. All these service providers will have to be subject to various rules in terms of equity capital, asset conservation, procedure for settling complaints. The liability of these service providers will now be engaged in the event of the loss of crypto assets belonging to investors.

MiCA will in particular protect consumers by requiring issuers of “stablecoins” to build up a sufficiently liquid reserve, with a ratio of 1:1 and partly in the form of deposits. We saw recently, with the collapse of Terra, that certain “stable coins” which presented themselves as “stable” and linked to a currency like the dollar, in reality were not. MICA therefore provides that each holder of so-called “stablecoins” can be reimbursed at any time and free of charge by the issuer.

MiCA also includes an environmental component. Crypto-asset service providers will thus have to declare information concerning their environmental and climate footprint. Within the next two years, the European Commission will have to provide a report on the environmental impact of crypto assets and the introduction of minimum sustainability standards on authentication processes (mining) which are extremely greedy in computing power and in energy.

But the regulatory work is not finished, less from there. Many areas of decentralized finance (that which wants to do without banks) still pass under the radar. An example: NFTs, these digital tokens that can serve as certificates of authenticity for digital works of art, are still awaiting regulation.

While the crypto planet has been shaken for weeks, trading platforms are laying off workers and the specialized fund Three Arrows Capital, which managed 10 billion dollars of assets invested in cryptocurrency, is bankrupt, the regulatory net tightening. A series of European regulations are indeed trying to bring decentralized finance into the regulatory field. Last week, an agreement was reached between the Parliament, the Council and the Commission on new rules aimed at improving the traceability of active crypto transfers. This text fills the gap that existed, in terms of the fight against money laundering, between traditional finance and crypto assets. For traditional fund transfers (transfer, etc.), international regulations have long required service providers in charge of these transfers to transmit information on the originator and the beneficiary (their domicile, the numbers of their identity ). This is called the “travel rule”. But crypto assets not being considered as currencies, passed through this regulation. This is no longer the case. The end of anonymity The trilogue agreement (Parliament, Council, Commission) indeed extends the “travel rule” to transfers of active crypto. This means that the same information that banks must send when making an international transfer on behalf of a client will now have to be sent by cryptocurrency exchanges. These platforms will also have to comply with due diligence standards. They will need to know their customers and take reasonable steps to be able to recognize suspicious behavior on the part of their customers. They will also have to put in place procedures to fully comply with sanctions, such as those targeting Russian oligarchs and officials. “For too long, crypto assets have remained under the radar of our law enforcement authorities, observes Assita Kanko, the (N-VA) who was one of the two chief negotiators (with the Spaniard Ernest Urtasun, Green) of the European Parliament on this file. For too long, terrorists have used cryptocurrencies to raise funds. Cryptocurrencies have facilitated access to child pornography and laundering the proceeds of criminals. This has harmed the real lives of real people and cast doubt on the crypto industry as a whole. Today, she adds, we made a big step to solve these problems. The misuse of crypto assets will be much more difficult and innocent traders and investors will be better protected. The extension to the crypto world of the travel rule which has existed for many years in traditional finance, will make this world safer.”Protected consumersA crypto world all the more secure as in parallel another European text called MiCA (Markets in Crypto Assets) will also regulate the market for crypto assets. The Presidency of the Council and the European Parliament have reached a provisional agreement on this text which aims to regulate issuers of crypto assets as well as the trading platforms and wallets where crypto assets are held. All these service providers will have to be subject to various rules in terms of equity capital, asset conservation, procedure for settling complaints. The liability of these service providers will now be engaged in the event of the loss of crypto assets belonging to investors. MiCA will in particular protect consumers by requiring issuers of “stablecoins” to build up a sufficiently liquid reserve, with a ratio of 1:1 and partly in the form of deposits. We saw recently, with the collapse of Terra, that certain “stable coins” which presented themselves as “stable” and linked to a currency like the dollar, in reality were not. MICA therefore provides that each holder of so-called “stablecoins” can be reimbursed at any time and free of charge by the issuer. MiCA also provides for an environmental component. Crypto-asset service providers will thus have to declare information concerning their environmental and climate footprint. Within the next two years, the European Commission will have to provide a report on the environmental impact of crypto assets and the introduction of minimum sustainability standards on authentication processes (mining) which are extremely greedy in computing power and in energy. But the regulatory work is not finished, less than there. Many areas of decentralized finance (that which wants to do without banks) still pass under the radar. An example: NFTs, these digital tokens that can serve as certificates of authenticity for digital works of art, are still awaiting regulation.

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