European regulation of crypto-asset markets: the French Presidency ends with political agreements on MiCA and TFR

Paris, July 1, 2022 – On June 29 and 30, 2022, the European Parliament and the Council of the European Union reached provisional political agreements on two major regulatory texts that will change the face of the European crypto industry: the Markets in crypto-assets (MiCA) regulation and the revised Transfer of Funds Regulation (TFR).

MiCA and TFR, two sides of the same coin for the structuring of the crypto-asset industry

The past two days have marked a turning point for the crypto industry as deliberations over MiCA and TFR continue to shape the European crypto markets of tomorrow, and accelerate the building of a safer environment for citizens willing to embrace the crypto innovation.

Indeed, with MiCA, Europe is creating a regulatory framework entirely dedicated to this new asset class. At the same time, and as recommended by the Financial Action Task Force (FATF), transfers of crypto-assets will now have to comply with the traceability and identification requirements (“travel rule“) required by the revision of TFR.

With these two political agreements, which constitute a step towards the harmonization of rules within European markets, Brussels hopes to better protect its citizens while effectively combating financial crime.

“These major advances – acquired under the French Presidency – are not only crucial for the sector in order to ensure regulatory certainty and clarity, guarantee fair competition and facilitate the expansion of their activity within the EU thanks to the European passport, but also for European citizens to help them seize the opportunities offered by crypto-assets in a safe and serene environment,” says Faustine Fleuret, President of Adan.

Between relief and regret

Adan welcomes the results of the trilogues on several major issues that had mobilized the sector. The exclusion of decentralized finance (DeFi) from the scope of MiCA was essential in order not to distort these innovations or force them to develop abroad. The non-qualification by default of NFTs as crypto-assets finally recognizes that they do not constitute a homogeneous population of financial assets. The creation of a public register of non-compliant crypto-asset service providers (PSANs) involving restrictions on their activity is an additional weapon against unfair competition and abuses harmful to European users. The proportionate approach to environmental issues will also allow crypto businesses to be effectively embarked on the fight against climate change.

However, despite our many warnings, some issues have not found a favorable outcome and will most likely threaten the achievement of regulatory objectives as well as EU competitiveness. Among them: increased complexity and rigidity of the stablecoin regime (while US entities are already taking advantage of the opportunity to issue crypto euros in our place); the transposition for crypto markets of the reverse solicitation opening a gap in the market for non-compliant foreign players; an extension of the scope of the travel rule to all transactions (from the first euro) and those between platforms and private wallets (“unhosted wallets”); or again, the systematic verification of information relating to the holders of private portfolios for transactions greater than 1,000 euros.

“Europe is moving faster and further than any other major jurisdiction in the world. Both regulators and companies are aligned on the legitimate objectives pursued by regulation. However, if our efforts converge in order to protect users, achieve EU environmental objectives and act against financial crime – without surrendering our sovereignty to foreign actors who are already bigger than European actors – there is an indispensable prerequisite : establish champions in Europe who carry our values and our ambitions” warns Faustine Fleuret.

It’s not over until the bell rings

Technical discussions are currently continuing between the co-legislators on each regulation before publication in the Official Journal of the European Union. MiCA and revised TFR will enter into force 18 months after their entry into force, probably end of 2022-beginning of 2023, with the exception of certain provisions in particular concerning stablecoins. Until then, the industry will face many challenges. First of all, Adan strongly encourages the clarification of several rules through technical texts that must be drafted by European regulators. This will be essential for the proper preparation and compliance of the actors with MiCA and TFR. Then, other texts such as the AMLA and AML regulations – which will be examined in the coming months – will supplement these regulations and, to respond to the concerns of the players, rebalance the balance of power with foreign players. Finally, some issues were not addressed in this first phase of the framework for crypto-asset markets and will be the subject of reflection in the months and years to come, such as the treatment of DeFi. This is why these political agreements are only the end of the beginning for the European regulation of crypto-asset markets.

“Adan will continue to work for the sector and support it on the road to European regulation: we must preserve the ambition of a strong and competitive industry in Europe’s sights,” reassures Faustine Fleuret .

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About Adan

Adan (Association for the development of digital assets) brings together professionals in digital assets and blockchain technologies in France and Europe. Its members make up a wide range of activities: markets, custody, payments, management, analysis tools, support for projects and users and IT security. Adan aims to unite the digital asset industry and promote its development in the service of a new digital economy. To do this, the Association has technical and regulatory expertise in the world of digital assets and maintains close dialogue with public authorities and market associations.

Contact : 

Faustine Fleuret, President and General Manager – [email protected]
Mélodie Ambroise, Director of strategy and institutional relations  – [email protected]
Website : https://adan.eu
Twitter : @adan_asso