Crypto regulation has been a topic of conversation in the crypto community for years. However, the 2022 crypto winter has compelled financial regulators to step up their crypto regulation game. The European Union appeared to be quite active last week in making decisions that could shape the future of the cryptocurrency industry.
Following meetings last week, the EU has reached a conclusion regarding crypto regulation. The European Parliament adopted a preliminary legal framework for the crypto space on Monday. The crypto regulation framework aims to increase requirements and standards for digital asset companies, with imminent voting on the matter.
The European Union passes a landmark crypto regulation Bill
566 out of 705 members of the European Parliament voted in favor of a motion sponsored by MEP Ldia Pereira. To prevent crypto-based money laundering, the Transfer of Funds Act Transfers of digital assets through third parties will always be required to be traceable, and questionable transactions will be able to be blocked.
The crypto regulation advises that authorities in the 27 member states seek a “simplified tax treatment.” The tax is imposed on crypto users who engage in infrequent or tiny transactions, with national tax authorities utilizing blockchain technology “to facilitate effective tax collection.”
The crypto regulation framework also requires the European Commission to determine whether the conversion of crypto to fiat constitutes a taxable event, depending on the location of the transaction.
In the meantime, officials from a European Council committee delivered the finished Markets in Crypto-Assets (MiCA) framework to parliament for a vote. If the legislative committee approves the text, the policies could be implemented in 2024.
The MiCA bill requires stablecoin enterprises to meet capital criteria, limiting the number of tokens they can issue if they are not denominated in euros or other currencies accepted by EU member states.
Later this month, European Parliament officials will vote again on the final ratification of the MiCA legislation before it becomes law.
Crypto regulation takes a toll on regulators
EU legislators have been discussing MiCA for over two years. According to MEP Stefan Berger, the economic union is working hard to regulate the “Wild West of the crypto-world.”
On Tuesday, the Financial Stability Board (FSB) proposed that stablecoins be required to centralize supply and that significant cryptocurrency platforms be torn up.
In the wake of the recent crypto market upheaval, the Financial Stability Board, a watchdog agency and standard-setter for the global financial system supported by central banks and finance ministries, desires complete worldwide regulation. FSB has targeted conflicts of interest in multidimensional operations and algorithmic stablecoins, such as the now-defunct terraUSD.
The FSB, which oversees the development of financial regulations across the Group of 20 Economies (G20), has issued nine suggestions for members to implement.
Currently, the market is mainly unregulated in the majority of countries, with compliance limited to defending against money laundering and terrorism financing, despite regulators’ warnings that investors risk losing their entire investment.
Klaas Knot, president of the Dutch central bank and chairman of the FSB, stated that the “crypto winter,” or a recent dramatic decline in crypto prices, has strengthened the board’s assessment of existing structural risks.
The FSB has stated that cryptocurrencies, whose total value is approximately $935 billion compared to $3 trillion at their November 2021 peak, do not pose a threat to financial stability. However, laws are necessary to govern a potential rebound.
The recommendations have been made available for public comment until December 15, after which FSB members would be urged to expedite their adoption.
The EU tightens the crypto grip on Russia
The European Union recently imposed further sanctions against Russia in response to its military actions in Ukraine, and crypto payments were not exempt. Cross-border crypto payments between Russians and the EU are entirely prohibited under the new restrictions.
According to this clause, “any crypto-asset wallets, accounts, or custody services, regardless of the quantity of the wallet,” are prohibited. Russian regulators just approved the use of crypto for cross-border payments.
As part of its economic and political sanctions, the European Union has prohibited the provision of Crypto services to Russia. The initial limitation only permitted payments from Russia up to a total of €10,000 ($9,700). All crypto payments are now prohibited.
This is in response to concerns about a rise in Russian companies adopting crypto to circumvent current sanctions. According to a statement from the European Union:
The package widens the scope of services that can no longer be provided to the government of Russia or legal persons established in Russia: these now include IT consultancy, legal advisory, architecture, and engineering services. These are significant as they will potentially weaken Russia’s industrial capacity because it is highly dependent on importing these services.
Sanctions against Russia, according to the EU, are effective. Why? Because they interfere with Russia’s capacity to move materials, produce new weapons, and repair existing ones.
Although much is still to be done to regulate cryptocurrencies, the EU MiCA law is an excellent place to start. Is it advantageous or disadvantageous for crypto developers and investors that the law will soon regulate the decentralized market? Time will tell.