EU Adopts First-ever Crypto Regulation Framework

Published: 19 May 2023

Elisabeth Svantesson FM-Sweden“Today’s decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war” said Elisabeth Svantesson, Minister for Finance of Sweden. (Photo: Swedish Presidency of the Council of the EU, Flickr, License)

By Erika Di Benedetto

In a landmark move, the European Union has taken a significant stride towards regulating the crypto sector by adopting a new regulatory framework for crypto-assets, issuers, and service providers.

The framework aims to protect investors by increasing transparency and ensuring that issuers and service providers comply with anti-money laundering rules. They will be obligated to collect and provide specific information about the sender and beneficiary of crypto asset transfers, irrespective of the transaction amount.

The rules also apply to those issuing utility tokens, asset-referenced tokens, stablecoins, as well as trading venues and wallets.

The objective of these measures, as highlighted in the Council's press release, is to enable authorities to trace and detect potentially suspicious transactions linked to money laundering or terrorism financing. By obtaining and sharing information about the parties involved in crypto asset transfers, authorities can better identify and track such transactions and take necessary actions.

This regulatory framework signifies the first comprehensive legal framework for the crypto sector, with the aim of enhancing transparency, protecting investors, and preventing the misuse of cryptocurrencies for illicit activities.

"Today's decision is bad news for those who have misused crypto-assets for their illegal activities, to circumvent EU sanctions or to finance terrorism and war," remarked Elisabeth Svantesson, Minister for Finance of Sweden. "Doing so will no longer be possible in Europe without exposure - it is an important step forward in the fight against money laundering."

The "MiCA" regulation also aims to promote transparency by encompassing various types of tokens and service providers in the crypto-assets industry. This is crucial for investor protection, maintaining financial stability, and fostering innovation.

Additionally, the new rules require crypto-asset service providers to share mandatory information with tax authorities through an automatic exchange.

These proposed regulations seek to establish uniform rules for crypto-assets across all EU member states. The decentralized nature of crypto-assets has posed challenges for tax administrations in ensuring tax compliance, and the cross-border aspect necessitates strong international administrative cooperation to enhance tax collection.

The MiCA proposal was first presented by the European Commission in September 2020. The Council adopted its negotiating mandate on MiCA in November 2021, and the legislative process involving co-legislators commenced in March 2022. The process culminated in a provisional agreement reached in June that year, and the formal adoption of the regulation on Tuesday marks the final step in the process.