Is the EU Pursuing Tighter Crypto Regulations?

The crypto industry is always dealing with regulatory issues, whether that’s fighting to achieve legal status in countries that are less pro-crypto or trying to get favourable status in the countries that are. As we’ve seen in the past, the state of crypto regulations has an immense impact on crypto adoption and the future of the industry as a whole.

Now, it seems that the EU might be pushing for tighter crypto regulations even in non-EU countries. This comes as the European Parliamentary Research Service (EPRS) has published a report on the Markets in Crypto-Assets Regulation (MiCA) Act, which is to be implemented by the end of next year.

In this report, it was stressed that non-EU regulators should take a firmer stance on crypto-related issues. The argument made was that even the EU would be affected by the policies of others, especially relating to the matters outlined in MiCA.

“There are yet several channels through which the EU's financial system and autonomy is still at risk as it remains dependent on non-EU countries’ policy actions in the context where the MiCA is applicable.” the report said.

MiCA is about to enter its second consultation package and the main focus seems to be on how crypto regulations can be streamlined around the world. The Malta Financial Services Authority (MFSA), for example, is currently conducting consultations to make adjustments to its crypto regulations so that it can better align with MiCA.

The report has also stressed the need for uniformity. As we all know, crypto regulations are not the same around the world or even the same within a singular country like the U.S. But with the EU creating a set of laws that will be simultaneously applied to multiple countries, the lack of uniformity will be even more glaring. So what does the EU want other countries to do?

From all indications, the EU wants these countries to be stricter with their regulation of cryptos. This includes making the distinction between a ‘crypto’ and a ‘token’ and requirements for cryptoasset issuers and cryptoasset service providers (CASPs). Should these be the same across the board, there is less legal room for misuse of crypto.

The implementation of MiCA in even non-EU countries can mean a more comprehensive treatment of the different ways that crypto is utilized. Within the current iteration of MiCA, it is acknowledged that crypto is used for different purposes and might have different designs. There are tokens that are backed by fiat currency, traditional assets, utility tokens, and whatnot.

As many of us might know, crypto has found a lot of use within the online gambling space but remains under-regulated in that context, especially when compared to speculative trading. But as top platforms continue to emerge within and outside the EU, tighter regulations like MiCA will help streamline their operations. It could also put an end to the years-long conflict about which cryptos are investments and which are not. This lack of agreement has seen multiple lawsuits spring up, especially in the US and this has strained relationships between the industry and regulators.

But even speculative trading has the capacity to benefit from tighter regulations. Differences in crypto treatment around the world mean that adoption rates differ as well. Take the crypto ETF that has been approved outside of the US but has been pending for years within it. MiCA-type regulations would mean that crypto businesses can access the same level of institutional support no matter where they are.

Then we need to consider the prosecution of crypto-related crimes. The FTX and Terra collapse from last year prompted many regulators and regulatory bodies to push for tighter laws to prevent more losses to consumers. Should other countries cooperate with the EU, crypto crime can be prevented, detected, and prosecuted more efficiently.

Ultimately, it seems that crypto users within and outside of the EU will be the ones who benefit from these tighter regulations as they will be better protected and could even have more access to crypto products.

Key Takeaways

In summary, the EU is calling on those outside of its jurisdiction to tighten their crypto laws to be more in line with the Markets in Crypto-Assets Regulation (MiCA). Should they comply, there will be more universal agreement on crypto token classifications, better regulation of service providers, potentially more crypto products for consumers, and more protection for those who deal in crypto.

This development is still in its early stages as MiCA is not to be fully deployed until late 2024.