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Harmonising Crypto across the EU


John Ho discusses the Regulation on Markets in Crypto-Assets or MiCA.

The European Parliament will shortly vote on adopting the regulation on markets in crypto-assets (MiCA). The regulation would establish harmonised rules for crypto-assets at EU level, thereby providing legal certainty for crypto-assets not covered by existing EU legislation.

By enhancing the protection of consumers and investors as well as financial stability, the regulation promotes innovation and use of crypto-assets.

The regulation identifies and covers three types of crypto-assets, namely asset-referenced tokens (#ART), electronic money tokens (EMT), and other crypto-assets not covered by existing EU law.

Current Situation

The EU #egulation of financial security markets is chiefly governed by Directive (EU) 2014/65 on markets in financial instruments (MiFID II), which is the core component of EU legislation on financial markets.

In particular, classifying a crypto-asset as a financial instrument under MiFID II depends on the application of the notion of 'transferable security' by Member States; a crypto-asset could be considered as a 'transferable security' in a Member State and not in another, resulting in fragmentation of the EU single market.

Moreover, the range of crypto- assets is so diverse, with many of them encompassing hybrid features, that some 'investment tokens' could be considered as either transferable securities or other financial instruments.

Impact Assessment

The outcome of the impact assessment conducted revealed the two options:

*Option 1: opt-in regime for unregulated crypto-assets. The degree of trust in the EU crypto-asset market would increase thanks to enhanced investor protection and market integrity. Service providers would also be enabled to scale up their activities on a cross-border basis. Nevertheless, it would not entirely remove market fragmentation.

*Option 2: full harmonisation. This would reinforce the legal clarity for market participants, who would benefit from the same level of investor protection and market integrity across the EU. Regulating service providers would enhance financial stability and anticipate large market sizes. It would substantially mitigate the risk of regulatory arbitrage in the EU.

Future Measures

The regulation proposed by the Commission would provide legal certainty for crypto-assets not covered by existing EU legislation. It would:

-replace existing national frameworks and establish uniform rules for crypto-assets at EU level.

- set out specific rules for stablecoins, including when these are 'e-money'. The proposed regulation is divided into nine titles.

-regulate issuance and trading of crypto-assets as well as the management of the underlying assets, where applicable, with additional regulatory rules aimed at 'significant' ART and EMT.

The provisional agreement resulting from the negotiations aims at securing liquidity and redemption, and envisages the inclusion of the environmental impact of crypto-assets in communications to investors.
Further Reading: https://www.europarl.europa.eu...(2022)739221_EN.pdf

John Ho is Head, Legal, Financial Markets at Standard Chartered Bank in Singapore. https://www.linkedin.com/in/jo...

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