Cryptocurrencies, stablecoins, NFTs… what the European MiCa and TFR regulations should change

Cryptocurrencies have experienced a boom in recent years. And with them, a multitude of projects and companies have appeared. This abundant ecosystem is still poorly regulated in the world. However, the European Union (EU) will create a first regulatory framework, which can serve as an example for other nations. On October 10, the texts MiCA (Markets in Crypto-Assets) and TFR (Transfer of Funds Regulation) were finally approved by the European Parliament Committee on Economic and Monetary Affairs.

They need to establish a set of rules within the European Union, with which brokers and platforms offering services related to crypto-assets will have to comply. A framework that is likely to reassure savers and strengthen the security of their investments in this new asset class, regularly targeted by fraudsters and hackers. Publication of the TFR and MiCA in the Official Journal of the EU is planned for early 2023, before entry into force between 12 and 18 months later, i.e. not before 2024.

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Here are the key points to remember from these two texts, which still need to be accompanied by technical details for the operational implementation of certain measures.

Creation of an accreditation at the European level

MiCA will require brokers and exchange platforms offering crypto-assets to have the approval of CASP, acronym for “Crypto Asset Service Provider”, in order to operate within the Union. This new status will allow brokers and platforms currently approved to benefit from a European passport, which will give the possibility of offering services and promoting them in the 27 member countries.

In France, the registration and accreditation of PSAN, for “digital asset service provider”, has already been implemented by the Pacte law of 2019. Today, more than fifty players are PSAN registered with the Financial Markets Authority (AMF), but none has yet been approved.

However, “the status of CASP at the European level is closer to approval than the registration of PSAN”, underlines Hugo Bordet, head of regulatory affairs at Adan, the lobby of the crypto sector in France. “However, some approval requests should be successful in the coming months,” he says.


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In addition to implementing a system to combat money laundering and terrorist financing, already provided for in the PSAN registration framework in France, actors seeking CASP authorization will have to demonstrate a resilient and secure IT system, submit a clear pricing policy and an information system for clients, especially regarding the risks associated with investing in crypto-assets. They will also be required to have a sufficient level of capital.

Finally, the good reputation and experience of managers will be subject to checks by financial regulators, as is already the case for PSAN registered brokers and platforms. All these are points that should bring more security and transparency to savers.

Report on the environmental footprint of crypto-assets

CASP players will also have to provide their clients with details of the environmental footprint of various crypto assets. The ban on labor certification was ultimately not upheld in MIKK. This mechanism, closely related to the mining process, is necessary for validating transactions for some cryptocurrencies such as bitcoin. It also requires a large amount of electricity to operate.

CASPs will have to explain its impact on the environment and possibly the mix of energy used, through clear and non-misleading information accessible to the customer who wants to buy bitcoin. Regardless of cryptocurrency, the same transparency will be required. Information will need to be provided on each computer log, such as labeling washing machines for their energy consumption.

The problem is that there is no established consensus on the footprint of various cryptocurrencies, starting with the first of them, bitcoin. “There is a lot of data about bitcoin, but still not accurate enough,” underlines Hugo Bordet, when they are not questioned. And for other blocks that work with proof of work, on which cryptocurrencies such as Litecoin and Dogecoin, can be data. missing, not to mention even more confidential digital tokens.

That is why details are still awaited from the European Commission, which will present a report on the environmental footprint of crypto-assets to the European Parliament and the Council of the EU in a few months.

Exchange of information about platform customers for each transaction

As part of a cryptocurrency transaction, future CASPs will be required to share information about the originator as well as the beneficiary of the crypto asset transfer. A measure provided for this time in the text of the TFR and aims to better fight money laundering and terrorist financing.

Information exchanged between two CASPs involved in a transaction will include:

  • for the director’s CASP: the surname and first name of this client, the address of his electronic wallet, the client’s account number, his postal address, his passport number or his identity card;
  • for the CASP of the beneficiary of the transaction: the name and surname of the beneficiary, the address of his wallet, his account number. Therefore, the customer’s address and identity document are not communicated here.

In the event of a breach being discovered, CASPs will be required to report to the authorities, in this case the Tracfin intelligence service in France.

This rule also applies to “traditional” fund transfers through banks, but only to transactions of at least 1,000 euros, when no threshold has been set for crypto-acts. “For players in the crypto sector, there is more bureaucracy, which leads to compliance costs,” says Hugo Bordet.

In addition, if a transaction is carried out on a platform that does not guarantee compliance with the European legislation on the protection of personal data (GDPR), the broker or the client’s platform may refuse to share information or even block the transfer of cryptocurrency. A first, which still remains to be confirmed and clarified by the European authorities.


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Identity verification of self-hosted portfolio owners

Regarding peer-to-peer transactions, from electronic wallets to others that are held directly by crypto-asset owners (“self-hosted wallets”, such as the Ledger brand), they are not subject to any information transmission or control. .

On the other hand, when an intermediary is involved, either for the originator or the beneficiary of the transaction, the intermediary or platform in question must systematically check some pieces of information about the holders of the self-settled (or private) wallet, if the amount of the transaction is greater than 1000 euros.

For example, if a cryptocurrency transaction order for an amount of 1,001 euros is issued by a broker to a private wallet, the identity of the holder of this wallet will be requested by the broker. The modalities for the concrete implementation of this measure remain to be determined. Today, a self-hosted wallet can be created without having to provide your identity or address. Therefore, this new rule would mean disclosing personal information to an intermediary.

European players fear ‘reverse demand’

Moreover, the text of the MiCA does not provide for the prohibition of “reverse solicitation”, which can be interpreted as a form of passive marketing. Foreign players not registered in the European Union are prohibited from soliciting clients or promoting their products on the continent. On the other hand, European savers can approach them directly, without an initial request on their part.

In this case, no prohibition is foreseen. A French or Portuguese investor, for example, can buy cryptocurrencies and subscribe to online services from the American platform Kraken, which is not regulated in Europe.

This reverse requirement “opens a loophole in favor of non-compliant foreign players”, considers Adan, who sees an asymmetry with the obligations imposed on future European CASPs.

DeFi and NFT exempted from MiCA, but not stable

MiCA does not regulate everything regarding crypto-assets. Decentralized finance (DeFi), which refers to all financial applications developed on blockchain technology, is excluded from this text. It should later be the subject of a report by the European Commission to determine the axis of regulation.

Similarly, non-fungible tokens, better known by their acronym NFT, remain generally exempt from MiCA regulation. But legal uncertainty remains for large collections or series of NFTs, which could potentially fall under this text.

Finally, the issuance by European players of new stablecoins, these cryptocurrencies backed by the price of a currency such as the dollar or euro, will be heavily monitored. And the creation of a stable euro currency could be vetoed by the European Central Bank, which is experimenting with its own electronic money and wants to maintain some control over this type of asset to remain sovereign.

As for algorithmic stablecoins, which operate more complex and often decentralized, they are surpassed by MiCA. They will not benefit from the exemptions granted to DeFi. CASP platforms and brokers will be prohibited from giving interest in services related to stablecoins, whether algorithmic or not. Cryptocurrency lending services, which sometimes work with stablecoins, are however not affected by this measure and are explicitly authorized by MiCA.

The poor guarantees offered by certain algorithmic stablecoins such as Terra, whose price completely collapsed in the spring, prompted European institutions to legislate. While much remains to be done to regulate crypto-assets, their uses and the players in the sector, European savers should benefit from a more reassuring and secure framework thanks to the TFR and MiCA regulations.


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