The European Commission, European Union lawmakers and member states finalised the Markets in Crypto-Assets (MiCA) law, after hours of negotiations.
The much-anticipated regulation is expected to completely change the crypto landscape in the bloc.
Under the new rules, cryptocurrency companies will need a licence and customer safeguards to issue and sell digital tokens in the EU.
In addition, stablecoins will be required to maintain ample reserves to meet redemption requests in the event of mass withdrawals.
Stablecoins that become too large also face being limited to €200 million in transactions per day.
The European Securities and Markets Authority (ESMA) will be given powers to step in to ban or restrict crypto platforms if they are seen to not properly protect investors, or threaten market integrity or financial stability.
Globally, crypto assets are largely unregulated, with national operators in the EU only required to show controls for combating money laundering.
The regulation “puts order in the Wild West of crypto assets and set clear rules for a harmonised market,” said Stefan Berger, German economist and politician of the Christian Democratic Union who has been serving as a Member of the European Parliament since 2019.
Berger, who led the negotiations, added, “The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act.”
Crypto markets have plummeted this year with bitcoin, the biggest token, plummeting around 70% since its November record of $69,000, dragging down the overall market.
Rising interest rates have shaken investors, leading to the collapse of the terraUSD stablecoin and the freezing of withdrawals and transfers by major crypto firms Celsius Network and Voyager Digital.
AFME, a financial markets industry body, said the rules would reduce fragmentation and underpin the development of a robust and well-functioning market.
More clarity is needed, however, to ensure that custodians of crypto assets are only on the hook in cases of negligence or misconduct, and not for events beyond their control, such as a nation state hack, AFME said.
Javier Hernani, head of securities services at SIX, believes “These rules will aim to bring about a much-needed pan-EU regulatory framework overseeing crypto-assets. However, it is important to note from a regulatory perspective that digital assets are not just about the trading of cryptocurrencies.
He adds, “The need for greater custody of digital assets is also increasing significantly. The industry will be seeking greater clarity around custodial liability agreements. This is particularly important as the number of new players entering the digital custody market has increased six times over the past six years.”
