On the last day of June, the European Union reached an agreement on how to regulate the crypto-asset industry, giving the green light to Markets in Cr
On the last day of June, the European Union reached an agreement on how to regulate the crypto-asset industry, giving the green light to Markets in Crypto-Assets (MiCA), the EU’s main legislative proposal to oversee the industry in its 27 member countries. A day earlier, on June 29, lawmakers in the member states of the European Parliament had already passed the Transfer of Funds Regulation (ToFR), which imposes compliance standards on crypto assets to crack down on money laundering risks in the sector.
Given this scenario, today we will further explore these two legislations that, due to their broad scope, can serve as a parameter for the other Financial Action Task Force (FATF) members outside of the 27 countries of the EU. As it’s always good to understand not only the results but also the events that led us to the current moment, let’s go back a few years.
The relation between the FATF and the newly enacted EU legislation
The Financial Action Task Force is a global intergovernmental organization. Its members include most major nation-states and the EU. The FATF is not a democratically elected body; it is made up of country-appointed representatives. These representatives work to develop recommendations (guidelines) on how countries should formulate Anti-Money Laundering and other financial watchdog policies. Although these so-called recommendations are non-binding, if a member country refuses to implement them, there can be serious diplomatic and financial consequences.
Along these lines, the FATF released its first guidelines on crypto assets in a document published in 2015, the same year when countries like Brazil started debating the first bills on cryptocurrencies. This first document from 2015, which mirrored the existing policies of the United States regulator the Financial Crimes Enforcement Network, was reassessed in 2019, and on October 28, 2021, a new document titled “Updated Guidance for a risk-based approach to virtual assets and VASPs” came out containing the current FATF guidelines on virtual assets.
Related: FATF includes DeFi in guidance for crypto service providers
This is one of the reasons why the EU, the U.S. and other FATF members are working hard to regulate the crypto market, in addition to the already known reasons such as consumer protection, etc.
If we look, for example, at the 29 of 98 jurisdictions whose parliaments have already legislated on the “travel rule,” all have followed the FATF’s recommendations to ensure that service providers involving crypto assets verify and report who their customers are to the monetary authorities.
The European digital financial package
MiCA is one of the legislative proposals developed within the framework of the digital finance package launched by the European Commission in 2020. This digital finance package has as its main objective to facilitate the competitiveness and innovation of the financial sector in the European Union, to establish Europe as a global standard setter and to provide consumer protection for digital finance and modern payments.
In this context, two legislative proposals — the DLT Pilot Regime and the Markets in Crypto- Assets proposal — were the first tangible actions undertaken within the framework of the European digital finance package. In September 2020, the proposals were adopted by the European Commission, as was the Transfer of Funds Regulation.
Related: European ‘MiCA’ regulation on digital assets
Such legislative initiatives were created in line with the Capital Markets Union, a 2014 initiative that aims to establish a single capital market across the EU in an effort to reduce barriers to macroeconomic benefits. It should be noted that each proposal is only a draft bill that, to come into force, needs to be considered by the 27 member countries of the European Parliament and the Council of the EU.
For this reason, on June 29 and June 30, two “interim” agreements on ToFR and MiCA, respectively, were signed by the political negotiation teams of the European Parliament and the Council of the European Union. Such agreements are still provisional, as they need to pass through the EU’s Economic and Monetary Affairs Committee, followed by a plenary vote, before they can enter into force.
So, let’s take a look at the main provisions agreed to by the political negotiation teams of the European Parliament and the European Council for the crypto market (cryptocurrencies and asset-backed tokens such as stablecoins).
Main “approved” topics of the Transfer of Funds Regulation
On June 29, the political negotiation teams of the European Parliament and the Council of the European Union agreed on provisions of the ToFR on the European continent, also known as the “travel rules.” Such rules detailed specific requirements for crypto asset transfers to be observed between providers such as exchanges, unhosted wallets (such as Ledger and Trezor) and self-hosted wallets (such as MetaMask), filling a major gap in the…
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