EU accepts rulebook for ‘Wild West’ crypto markets By Reuters

By Huw Jones and Tom Wilson

LONDON (Reuters) – The European Union on Thursday reached a preliminary agreement on the world’s first set of comprehensive rules to regulate what a legislator called the “Wild West” crypto market.

WHAT ARE THE NEW RULES?

Cryptocompanies that want to issue and sell digital tokens in an EU state must obtain a license from a national regulator.

The license will allow operators to operate the entire 27-nation block from one base, and be responsible for losing cryptocurrencies from consumers’ digital wallets.

At present, companies show a national regulator in the EU that they have sufficient controls to stop money laundering, but that they can only operate in that country.

National watchdogs must update the EU securities watchdog ESMA on any major operators they have authorized, which stops with the legislator’s requirement for a European watchdog for the sector.

SO THE RULES ARE ALREADY IN EFFECT?

Not yet.

The agreement needs formal rubber stamping by EU states and the European Parliament before it enters into force – probably no earlier than 2023.

The rules will apply to some tokens such as “stablecoins” – crypto linked to traditional currencies or commodities that aim to maintain a stable value – 12 months from the day the law enters into force. For other tokens, the rules will apply 18 months after the start date.

Cryptocompanies that already comply with the control against money laundering will also have 18 months to obtain licenses under the new law, without disturbing the service.

IS STABLECOINS A BIG PROBLEM?

Surely.

The collapse in May of terraUSD stablecoin triggered strong sales in crypto markets and concerned regulators.

EU rules will give holders of stack coins the right to claim their money back for free. Issuers of tokens will have to maintain minimum levels of liquidity, and will be monitored by the EU’s European banking authority.

Cryptocurrencies must have a registered office in the block to issue stable coins, and coins based on non-European currencies will be restricted in order to preserve “monetary sovereignty”.

Officials in the crypto industry say it will be more difficult to make money under such rules.

AND NON-FUNCTIONAL TOKENS?

It’s complicated. Legislators wanted non-fungible tokens (NFTs) under the new rules, but EU states were opposed.

This led to a compromise where NFTs are not included, but if they become fungible – mutually interchangeable – regulators can force them to comply with crypto rules. If they act as traditional securities, the EU’s strict MiFID market rules may come into play.

The EU Commission will within 18 months assess whether there is a need for independent rules for NFTs.

WHAT ABOUT CRYPTO AND CLIMATE CHANGE?

energy use is a major concern for legislators.

Cryptocompanies must disclose their impact on the environment and climate change, using standards that ESMA’s securities watchdog will develop.

The European Commission will within two years assess the environmental impact of cryptocurrencies and introduce mandatory sustainability rules, including the energy-intensive “proof of work” system used to “mine” crypto such as bitcoin.

WHAT DO OTHER COUNTRIES DO?

Japan made a mark among major economies by introducing a crypto law in 2017, which forced exchanges to register with their economic watchdog.

Others have been slower.

In the United States, there is no federal framework in place, although individual states have cryptospecific rules. Senators unveiled a bill this month to lay down new rules and leave most of the supervision to commodity regulators, although it is unclear when the rules will be approved.

The UK said in April that it would introduce rules for stable coins, so that most cryptocurrencies and related firms are only subject to uneven regulation.