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

Cryptocurrencies have experienced a boom in recent years. And along with them, a lot of projects and companies appeared. This rich ecosystem is still poorly regulated in the world. However, the European Union (EU) will create the first regulatory framework that can serve as an example for other countries. On October 10, the texts MiCA (Crypto Asset Markets) and TFR (Regulation of Funds Transfers) were finally adopted by the European Parliament Committee on Economic and Monetary Affairs.

They should establish a set of rules in the European Union that brokers and platforms offering services related to crypto assets will have to comply with. A structure that is likely to reassure savers and enhance the security of their investment in this new asset class that is regularly attacked by scammers and hackers. The publication of TFR and MiCA in the Official Journal of the EU is scheduled for early 2023, with entry into force 12-18 months later, i.e. no earlier than 2024.

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

Establishing accreditation at European level

The MiCA will require brokers and exchange platforms offering crypto assets to be approved by CASP, an acronym for Crypto Asset Service Provider, in order to operate in the Union. This new status will allow de facto approved brokers and platforms to enjoy a European passport, enabling them to offer and promote their services in the 27 member countries.

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

However, “the status of CASP at the European level is closer to being approved than to registering PSAN,” emphasizes Hugo Borde, head of regulation at Adan, a crypto sector lobby in France. “However, several requests for approval should be granted in the coming months,” he admits.


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In addition to the implementation of the anti-money laundering and anti-terrorist financing system already provided for under the PSAN registration in France, entities requesting CASP authorization will be required to demonstrate a fault-tolerant and secure IT system, a clear pricing policy and a customer information system, in particular about the risks associated with investing in crypto assets. They will also need to have a sufficient level of capital.

Finally, the good reputation and experience of leaders will be subject to scrutiny by financial regulators, as is already the case with PSAN-registered brokers and platforms. All these points should provide greater security and transparency for depositors.

Inform about the ecological footprint of cryptoassets

CASP players will also be required to provide their clients with detailed information on the environmental impact of various crypto assets. The ban on proof-of-work did not end up in MiCA. This mechanism, closely related to the mining process, is necessary to verify transactions for certain cryptocurrencies such as bitcoin. It also requires a lot of electricity to operate.

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

The problem is that there is no well-established consensus about the influence of various cryptocurrencies, starting with the first of them, bitcoin. “There is a lot of data about bitcoin, but it is not yet accurate enough,” Hugo Borde emphasizes when not asked. not to mention even more private digital tokens.

That is why details are still pending from the European Commission, which will submit a report on the environmental impact of crypto assets to the European Parliament and the EU Council within a few months.

Exchange of information about platform clients for each transaction

As part of a cryptocurrency transaction, future CASPs will need to exchange information about the sender as well as the beneficiary of the transfer of crypto assets. A measure provided for this time in the text of the TFR and designed to more effectively combat money laundering and terrorist financing.

The information exchanged between the two CASPs involved in a transaction will include:

  • for the CASP of the principal: the last name and first name of this client, the address of his electronic wallet, the number of his client account, his postal address, the number of his passport 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 client’s address and identity document are not reported here.

If a violation is discovered, CASP will have to inform the authorities, in this case the Tracfin intelligence service in France.

This rule also applies to “traditional” bank transfers, but only for transactions of at least €1,000 when there is no threshold for crypto assets. “Therefore, there is more bureaucracy for players in the crypto sector, which leads to compliance costs,” says Hugo Borde.

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


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Verification of the identity of the owners of their own wallet

As for peer-to-peer transactions, from e-wallets to others owned directly by the owners of crypto assets (“self-hosted wallets”, such as those of the Ledger brand), they are not subject to information transfer or verification. .

On the other hand, when an intermediary is involved, whether for the initiator or beneficiary of the transaction, the respective broker or platform must systematically check several pieces of information regarding the holders of their own wallet (or private), if the transaction amount exceeds 1000 euros.

For example, if an order for a cryptocurrency transaction in the amount of 1001 euros is issued from a broker to a private wallet, the broker requests the identity of the holder of this wallet. The conditions for the specific application of this measure have yet to be determined. Today, you can create your own wallet without the need to provide an identity or address. Thus, this new rule implies the need to disclose personal information to the intermediary.

European players fear “reverse petition”

Moreover, the MiCA text does not provide for a ban on “reverse extortion”, which could be translated as a form of passive marketing. Foreign players not registered in the European Union are prohibited from attracting customers or promoting their products on the continent. On the other hand, European investors can contact them directly, without prior request from them.

In this case, there is no prohibition. For example, a French or Portuguese investor can buy cryptocurrency and subscribe to the online services of the American platform Kraken, which is not regulated in Europe.

This reverse petition “opens a gap in favor of non-compliant foreign players,” said Adan, who sees an asymmetry with the obligations placed on future European CASPs.

DeFi and NFT excluded from MiCA, but not stablecoins

MiCA does not regulate everything related to crypto assets. Decentralized finance (DeFi), which refers to all financial applications developed on blockchain technology, are excluded from this text. Later, it should be the subject of a report by the European Commission to determine the axes of regulation.

Similarly, non-fungible tokens, better known by the acronym NFT, generally remain excluded from MiCA regulation. But there remains legal uncertainty about large collections or series of NFTs that 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 the euro, will be strictly controlled. And the creation of the euro stablecoin could be vetoed by the European Central Bank, which is experimenting with its own electronic money and wants to retain some control over this type of asset in order to remain sovereign.

When it comes to algorithmic stablecoins, which operate more complex and often decentralized, MiCA has overtaken them. They will not benefit from the exceptions provided by DeFi. CASPs and brokers will be prohibited from providing interest on stablecoin-related services, whether algorithmic or not. However, this measure does not affect the cryptocurrency lending services that sometimes work with stablecoins and are expressly permitted by MiCA.

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


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