EU Regulatory Framework for Digital Assets
On the 16th of May, the European Council adopted new rules for the markets in crypto-assets (MiCA) which brings crypto-asset market participants under a single regulatory framework. MiCA aims protect investors by increasing transparency whilst also preserving financial stability and fostering innovation in the EU. MiCA broadly applies to crypto-assets which do not qualify as financial instruments, as well as those firms that provide crypto-asset services (such as custody, administration or exchange). Firms issuing in-scope assets are required to ensure that retail investors are informed of product information including characteristics, functions and risks of the relevant crypto-asset. Issuers are required to notify the relevant competent authority via a whitepaper, with general information on the issuer, the intended use of the capital raised, on the relevant rights and obligations and on the risks and underlying technology. MiCA also contains specific rules depending on the classification of crypto-asset including asset reserves requirements and price stabling control mechanisms.
The regulatory framework surrounding crypto-assets seems to be finally materialising in 2023, with recent developments from both the UK and EU. Yet scepticism still remains amongst lawmakers; the Treasury Committee stated on the 17th of May that cryptocurrency trading should be regulated as gambling as opposed to a financial service. The crypto-asset industry has been plagued by scandals, but the lack of a clear legislative framework has left the industry in a state of flux. Regulators need to take a consistent approach, ensuring rules can keep up with the pace of innovation whilst also protecting investors. Harmonised regulation such as MiCA may start to set the global regulatory standard, providing clear direction whilst proactively looking to foster innovation.
